Bitcoin CFDs vs. Bitcoin Futures: What's the Difference?

Bitcoin CFDs (Contracts for Difference) and futures are investment vehicles that allow you to speculate on the price of Bitcoin without actually buying the coins.

Bitcoin CFDs (Contracts for Difference) and futures are investment vehicles that allow you to speculate on the price of Bitcoin without actually buying the coins. This post will explain what Bitcoin CFDs are and how they are different from Bitcoin futures. It will also list some of the best brokers for trading Bitcoin CFDs and futures.

Bitcoin CFD Trading Summary

Bitcoin CFDs and futures allow you to strike a deal about the future price of Bitcoin and profit (or lose) from price changes. They are in fact a form of “betting” on Bitcoins price.

While CFDs and futures are very much alike, there are some differences that distinguish these two products from one another. Here are the best CFD brokers around:

That’s Bitcoin CFDs in a nutshell. If you want a more detailed review, keep on reading. Here’s what I’ll cover:

1. Bitcoin Futures Explained

Futures are an investment vehicle originally created to help traders protect themselves from price changes in different commodities. Many people who trade assets are looking for certainty in their future income, and that’s hard to achieve when prices constantly fluctuate. That’s where futures come in.

When you purchase a futures contract, you are basically signing a contract to purchase something later at a specific price. For example, let’s say you’re a Bitcoin miner and you generate income by mining Bitcoins and selling them on the market. While you could estimate the amount of Bitcoins you’ll be able to mine each month, it’s hard to estimate how much USD you’ll be able to get for them since Bitcoin is pretty volatile.

In this case, you may want to sell Bitcoin futures contracts stating you’re willing to sell X amount of Bitcoins at a rate of Y on the 1st of the month. When the 1st of the month arrives you’ll settle this contract with your counterparty and receive your money.

Futures contracts can be settled by actual physical delivery of the product or through cash settlement. Physical delivery means that I will send the Bitcoins to my counter-party and he will pay me the amount stated in the contract. Cash settlement means we’ll figure out how much these Bitcoins are worth at the time the contract expires.

If this amount is greater than the contract amount it means I lost potential income, so I will send my counter-party the cash equivalent of this difference. On the other hand, if the price dropped, this means I protected myself from potential loss and that my counter-party lost money. He will then send me the cash equivalent of this difference. In any case, the Bitcoins never trade hands, only cash does.

The main benefit is that I had certainty about how much fiat currency I’ll earn at the end of the month.

2. Bitcoin CFDs Explained

A Contract for Difference ,or CFD for short, is very similar to a future. With a CFD, the buyer and seller agree to pay any difference as prices rise or fall in cash, instead of through the delivery of physical goods.

A Bitcoin CFD allows an investor to tap into the benefits and risks of Bitcoin trading without having to physically own the coin itself.

Let’s go back to our previous example to see how this works.

Let’s assume that you are very confident that Bitcoin’s price will rise in the near future and you want to invest in Bitcoin. While you could go out and purchase Bitcoin, that might be too complicated, especially if you don’t have a verified account on any Bitcoin exchange.

So instead of buying actual Bitcoins, or even a futures contract that would require the future delivery of the Bitcoin, you could purchase a Bitcoin CFD.

In this arrangement, you and the seller of the contract would agree to settle any rise or drop in prices in cash when the contract is terminated. If your intuition about Bitcoin’s price increasing turns out to be correct, you will be paid the difference between the current price and the price when the contract was purchased by the seller.

On the other hand, if your intuition turns out to be incorrect and prices don’t go as you expected, you will have to pay the difference. In a certain sense, this is essentially betting on whether or not prices will rise or drop.

Because of how simple it is to execute a CFD trade, Contracts for Difference are very popular among traders and numerous different brokerage firms.

3. Bitcoin CFDs vs. Bitcoin Futures

CFDs and futures sound very similar, and many new traders believe they are completely identical. However, there are some differences between the two products:

To start with, while futures have a specific expiration date, CFDs don’., A CFD can be kept for as long as the terms of the contract allow, and there’s no need to settle it on a specific date. When the CFD is liquidated, the difference in price will be calculated and paid to the appropriate party.

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