Hi, Pankaj here 👋
Consider Joe, he is a gas station owner. One day on the news he heard something about the passing of a bill regarding gas. After hearing the news he anticipated that within a month the price of gas may fall up to 20% due to the bill. So he decided to take advantage of the situation and thereby he sold all his reserved gas of around 2000 barrel at $100/ barrel today to someone willing to buy. Later that month to his anticipation the price of gas dropped as much as 22% and with the money, he got from selling his gas reserve, Joe bought back the gas at $80 / barrel, thereby making a profit of around $40 k in the process.
This is called hedging and you may also find this very familiar, as this is what most of us do when trading crypto to secure our portfolio, when we sell Bitcoin for Tether and then back buy more Bitcoin for the same amount of Tether we earned by selling our bitcoins.
When both parties enter into an agreement to buy or sell physical assets like the one above at a fixed and certain price at a future date, the agreement is called a Future.Remember that, in Futures one can either go long( fancy term for saying you will buy) or go short ( fancy term for saying you will sell).
Similar to Futures backing physical assets, Futures can also be created based on the price of Bitcoin, and these are called Bitcoin Futures.Bitcoin Futures are a means to hedge and work similarly as the mechanism discussed above in diagram, just replace cash with Bitcoin future contract.And we are done for now.Let's see why Bitcoin Futures play an important role in the crypto world.
Bitcoin is not regulated, but Bitcoin Futures are regulated. This gives the average Joe confidence to get involved with bitcoin without actually owning any.
It brings in more investor and thereby may help the crypto market grow as now people are immune to the fluctuations in the price of Bitcoin.
It help increase market liquidity and stability.
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I had invested a lot in tron and have gained a 1000% ROI . Now tron prices are a bit low but nevertheless they are gonna increase and then we all are gonna make huge profits.
Sorry, brother, actually what happened is somehow my previous Tron article got reposted automatically as a duplicate post, so I had to change this to some other post. The original copy of my tron article is still on my blog. And I really appreciate your kind comments, I have also invested and I too believe that it has great long-term potential. Thanks once again.
i think bitcoin price will increase
yeah, definately.
I like this post.
I'm glad you liked it @nnamdit
You got a 2.21% upvote from @oceanwhale With 35+ Bonus Upvotes courtesy of @pankajborah! Delegate us Steem Power & get 100%daily rewards Payout! 20 SP, 50, 75, 100, 150, 200, 300, 500,1000 or Fill in any amount of SP Earn 1.25 SBD Per 1000 SP | Discord server
Thanks, @oceanwhale for help, I really appreciate that.