As an agreement between two parties buying and selling for a transaction to take place in the future at a specified price, Futures Contracts create high profit opportunities, playing a key role in minimizing risk to the market. basis.
However, the CFT and SEC recently warned investors to be cautious about trading in Bitcoin futures. Why?
CFTC and SEC Warn Investors To Be Cautious About Trading Bitcoin Futures
The United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have warned investors about the risks of investing in bitcoin futures-related funds.
The SEC published an investor warning about bitcoin futures trading funds on Thursday this week that some funds may engage in the trading of bitcoin futures contracts as a way to gain exposure to bitcoin. , emphasizing that cryptocurrency “is a highly speculative investment.” The warning came from the SEC’s Office of Investor Education and Advocacy (OIEA) and the CFTC’s Office of Client Outreach and Outreach (OCEO).
They advised investors to consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and the potential for fraud or manipulation in the underlying bitcoin market.
On the other hand, traders before investing in a fund that buys or sells bitcoin futures “should carefully consider the potential risks and benefits of the investment,” naming factors such as the likelihood of their risk tolerance, the fund’s disclosure of its risk, and the possibility of loss.
The warning also warns that an increase in the price of bitcoin may not lead to an increase in the value of the fund holding positions in bitcoin futures. For example, funds may not have direct exposure to the underlying assets of the contract. Additionally, bitcoin futures prices can vary by delivery month and differ from BTC prices. Futures contracts also expire periodically, leading to fluctuations in portfolio rates as expiring futures positions are often converted into new contracts.
Meanwhile, the new chairman of the SEC, Gary Gensler, has pushed for increased scrutiny of the crypto space, especially of crypto exchanges. To date, the SEC has launched 75 crypto-related enforcement actions in the industry. Gensler has called on Congress to pass legislation protecting investors.
Learn about futures contracts and the pros and cons of this type of trading
A futures contract or Bitcoin futures is an agreement to buy or sell an asset at a specified time in the future at a specified price.
Once a futures contract has been established, both parties must accept to buy and sell at the previously agreed-upon price, regardless of market price changes at the expiration date. contract term.
If you choose to buy, you agree to buy an asset into the future at a fixed price once the contract matures. Conversely, if you choose to sell, you accept to sell the asset at an agreed-upon price when the contract expires.
With Bitcoin futures trading, the value stated in the contract will be based on the price of Bitcoin, and speculators can therefore “place bets” based on their beliefs about how Bitcoin will rise or fall until when the contract expires.
Besides, it allows investors to speculate on the value of Bitcoin without having to actually own the cryptocurrency.
Although futures contracts have attractive advantages such as high profit opportunities without cost, high leverage, good liquidity, etc., they also contain certain disadvantages.
Trading in futures contracts is only suitable for surfers who have time to study the markets, look at electricity boards and charts. In contrast to those who do not put in the time and dedication, this form of trading brings quite a lot of risk.
On the other hand, leverage is the factor that makes futures attractive, but the leverage effect is only profitable if investors correctly predict the volatility trend. If the trader predicts wrong, losses will occur and under the effect of leverage, the percentage of loss as a percentage of the initial deposit will be much larger.
It can be seen that futures contracts are derivative products that are causing the investment market in general and the cryptocurrency market in particular to heat up day by day. Concerned about the potential risks of this form of trading, the SEC and CFTC have issued warnings by pointing out its limitations to protect investors.
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