What is a Futures Contract?
Futures contract is a type of derivative* that is essentially an agreement between two parties to buy/sell an asset (e.g. Bitcoin) of a specific value at a predetermined future date and price. The aforementioned asset is known as the underlying of the Futures contract.
Derivative: A derivative is a financial contract which derives its value from an underlying asset.
Derivatives have no direct value in and of themselves; in other words, their value is based on the price movements of their underlying asset. When the underlying asset is a crypto like Bitcoin, they are termed as Crypto derivatives.
Trading Crypto derivatives doesn’t actually mean buying or selling cryptos. It provides an alternative path to get exposure to the underlying crypto.
Derivatives are often used as an instrument to manage financial risk at the expense of high returns for the other party.
To learn about more such glossaries, click here.