Understanding of Futures Premium in cryptographic markets
The world of cryptocurrencies has seen a significant increase in commercial activity in the last ten years, with many investors trying to profit from the vast opportunities offered by this market. A key concept that played a crucial role in modeling the panorama of cryptocurrency is the « Premium Futures », which refers to the diffusion between the price of an activity and its expected performance.
What is Futures Premium?
In traditional markets, such as future contracts or options on securities, a fixed -free fixed rate is applied on both sides of the trade. This means that the buyer pays a reward (or a risk -free profit) for the privilege of taking this risk, while the seller receives an equal performance, regardless of the result.
In cryptocurrencies, however, things are not so simple. The price of cryptocurrencies is largely determined by the market forces and there is no fixed rate without risk to be applied. This led to a situation in which investors are looking for alternative ways to cover their bets against potential losses or earnings in the cryptocurrency markets.
Futures Premium in the cryptocurrency markets
The Futures Prize, also known as « spread » or « premium of volatility », refers to the additional performance that investors try to invest in cryptocurrencies as well as what is reflected in its current price. In other words, it is the extra profit that investors are willing to pay for the privilege of keeping a cryptocurrency contract.
To illustrate this concept, consider the example of the contracts of Futures Bitcoin. These contracts allow traders to bet on Bitcoin’s future price. The spread between the current price and the expected return (or « volatility prizes ») is generally in the range of 0.5% to 2%, depending on the market conditions.
For example, if Bitcoin prices are exchanged at $ 30,000, a trader could be willing to pay other $ 15 per unit (0.5%) for the privilege of keeping a future Bitcoin contract with an operating price of $ 25,000 (expected return). This represents a further profit of 1.25% compared to the current market price.
Types of Futures Premium
There are different types of future prizes that investors can search for cryptocurrencies in markets:
* Volatility award
: This is the most common type, in which traders try to cover potential losses or earnings due to changes in market volatility.
* Riskless interest rate : some investors could look for a higher return on their investments, often indicated as « risk -free interest rate », investing in cryptocurrencies that are not supported by any tangible activity.
* Decay of the premium time : This type of prize reflects the increase in the risk associated with the possession of a cryptocurrency for a prolonged period, since it is more likely that the price decreases over time.
Impact on Cryptocurrency Prices
The Premium Futures has a significant impact on cryptocurrency prices. By providing investors with access to alternative ways to cover their bets against potential losses or earnings, it can influence market dynamics in different ways:
* Reduction of volatility : a lower prize means that traders are more willing to take risks and invest in cryptocurrencies, which can lead to an increase in price movements.
* Increased participation : higher prizes encourage investors to participate in the market, since they try to profit from potential earnings.
* Change of market behavior : the Futures Prize can influence the volumes of negotiation, liquidity and general feeling of the market, influencing the direction of the policy prices.
Conclusion
Understanding the concept of Futures Premium is essential for investors trying to navigate the world of cryptocurrencies.