Futures are an investment asset that allow us to invest in a range of commodities. From gold to livestock, futures increase the field of investment opportunities to virtually any commodity, no matter the value. They are an essential component of pricing commodities on a global scale, and support the most complex of global markets.
A growing asset
One asset that is becoming increasingly popular is the purchase of cryptocurrency futures, wherein one essentially signs a contract to purchase something later on, for a designated price. For example, if you buy an Ethereum future at 1,000 Ethereum tokens, you are actually purchasing a contract for the delivery of 1,000 Ethereum tokens when the agreed date arrives. Most traders will sell their futures contract before that day comes.
Traders can avoid this process of a physical delivery of commodities through a Contract for Difference (CFD). This means the buying and selling parties agree to settle any differences as prices rise or fall using cash, rather than the physical goods themselves. With cryptocurrencies, a CFD will enable an investor to tap into the gains and risks of cryptocurrency trading without having to own any of the actual currency.
Risk vs. reward
Going back to the Ethereum example, let’s assume you are confident that the value of Ethereum will rise very soon, and you want to benefit from this by investing. You could purchase some Ethereum, but this can be a difficult thing to do in the modern market.
Instead of actually purchasing Ethereum, or even a future in it, you could purchase a CFD. This way, you and the seller agree to settle any increase or decrease in value with cash on the contracted date. If your confidence in the price rising turns out to be well-founded, you will receive the difference from the seller, but if things don’t go your way you will have to pay off the difference.
Impossible to predict
Investing in a CFD for cryptocurrencies could be a very profitable move, but it comes with a higher risk than more conventional investing. This is because cryptocurrencies are notoriously volatile and unpredictable, with very little basis for you to make strong predictions. Furthermore, the future of cryptocurrencies is mired in uncertainty – some say it is a bubble waiting to burst, while others fear the potential for countries to slap strict regulations on the trade. For the time being at least, cryptocurrencies are far too risky to be considered a safe bet for CFDs and more conventional investment opportunities are a more advisable path to take. Contact Phillip Nunn today for more advice on CFDs and investing.