A Brief Introduction to Ethereum Futures

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The Ethereum futures market is a new way for experienced investors and traders to trade ETH. In this article, you will learn what Ethereum futures are and how they work.

What is a Futures Contract?

There have been futures contracts in place for hundreds of years. With them, farmers have been able to lock in a price for their goods now for a future date. This removes the risk of what the market price would be at harvest time.

Suppose that, prior to planting this year’s crop, Jane, who owns a small farm, agrees to sell her wheat to Bill’s Bakery for $100 a bushel when it is harvested. This allows Jane and Bill to have a certainty around their costs of running their businesses.

It is possible that Jane may be forced to sell her wheat at harvest time for less than her production costs as a result of a futures contract. On the other hand, Bill may have to buy the wheat at harvest time for more than his regular selling price of bread.

It has been through the development of Ethereum Futures Trading that it has expanded to include precious metals, currencies, energy, financial instruments, and now digital assets as well.

What Are Ether Futures?

It is possible for hedgers and speculators to come to an agreement on the price of ether at a fixed time in the future using Ethereum Futures.  

ETH Futures can be used by a seller to lock in a higher price for the future if they think the spot price for ETH will go down in the future. On the other hand, they can be used by a buyer to lock in a lower price now if they think the spot price will rise in the future.

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In the case of ETH Futures Trading contracts, for example, this could be used by a company mining digital currency as a way to lock in a price, thereby stabilizing a portion of their income.

It has been found that one of the most attractive aspects of futures trading is the ability to trade with margin. Margin allows you to gain more exposure to the market, with less capital involved. If the trade goes well, you can accelerate your portfolio growth. If the trade goes poorly, you could lose your entire account.

There are many people in the digital asset space who recommend avoiding leverage when it comes to digital assets. However, if you choose to use leverage, you may find that you can sleep better at night if you start with the smallest amount possible.

What is the role of ETH futures in your portfolio of digital assets?

The only person who can decide whether ether futures contracts are suitable for your portfolio is you. Futures are not generally recommended for those who are new to trading.

The risks involved with financial derivatives trading due to the size of the contracts and to the use of margin could make for a pricey education unless you have extensive prior experience with financial derivatives trading.

You might want to consider buying some ether at spot price on a reputable exchange and “HODLing” it for the long-term if you are looking to add exposure to ether to your portfolio.

Is ETH a part of your digital asset portfolio?

There is a belief that bitcoin is the only digital asset one should have in their portfolio. If you look at what Microstrategy, Square, Tesla, and Paypal have purchased to date, this may be a sentiment that is not uncommon.

Grayscale, however, offers an Ethereum Trust, among other digital asset trusts, among their investment options.

Taking a broader look at which blockchains other projects are building upon, it is clear that Ethereum is one of the largest, and they also have one of the largest numbers of developers working on optimizing the protocol to allow mass adoption of the project.

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You are the only person who can decide if ETH aligns with your investment thesis at the end of the day.

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If you are interested in further research, you can check out the Bitcoin Market Journal’s Digital Assets Ranking & Analysis page.

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