What are futures?
The latest surge of excitement in the world of cryptocurrencies came over the weekend when the Chicago Board Options Exchange launched futures trading for bitcoin for the first time.
Futures contracts allow investors to agree to buy a certain amount of a commodity, bond or share at a specific price at a designated time in the future, hence the name. It means investors can bet on whether they believe a particular commodity – in this case bitcoin – will rise or fall by a specified future date. They are generally used in commodity markets to hedge against major fluctuations in prices, such as unexpected weather conditions hitting crops. But they are also well established in equity markets, with trading on individual companies and indices such as the FTSE 100 and S&P 500.
There are risks, mainly when investors use debt to finance their futures speculation and their bet goes the wrong way.
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