Cardano futures launch on BitMex
Cryptocurrency derivatives giant BitMex begins trading Cardano futures this week.
As of this Monday, traders can now purchase futures contracts in ADA, the native token of the Cardano network. The contracts let traders speculate on the future price of the ADA/BTC (Bitcoin) exchange rate.
Traders can go long or short on the ADA/BTC exchange rate, meaning that they can bet in favour of the rate increasing or decreasing, depending on their view of the market. At the end of the contract's lifecycle, the trader will receive a payout or debt, according to the success of the contract.
The advantage of such contracts over traditional trading is that the owner of the contract does not need to purchase any of the underlying asset, such as ADA, which increases their exposure to risk. In this instance, the contract is purchased and paid out in BTC, so the trader only needs to purchase BTC in order to take a future position on another coin.
BitMex also offers traders the option to leverage up to 20x their initial purchase, meaning that they can effectively borrow up to 20x the value of their initial purchase of BTC. Leverage, or "margin trading" is extremely high risk and not encouraged for amateur traders.
Futures trading has been referred to as the “next wave” of cryptocurrency trading as it takes a purely speculative stance on the trading of cryptocurrency, whereas traditionally traders might purchase coins because of their intention to use the currency for its intended purpose (transactions, network fees, etc).
Late last year, US financial firms Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) Group began offering bitcoin futures contracts on 10 December and 18 December respectively. They were the first firms to do so, exposing cryptocurrencies to such markets for the first time. Unlike those above, these contracts are cash settled, meaning the trader never purchases any cryptocurrency themselves.
Futures contracts have been criticised by some veteran cryptocurrency traders as a negative addition to the space since it potentially gives traders a financial incentive to see a coin's price decrease (if they took up a short position). Previously, all traders had benefited from the prices of coins increasing, with the popular adage “a rising tide lifts all boats” often being used to describe market sentiment.
Since the release of futures on Monday, Cardano has dipped from $1.25 to $0.84 at the time of writing.
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