- Cryptocurrency futures contracts are derivative products that allow market participants to enter into contracts for future purchase or sale of underlying assets (cryptos) at an agreed price on a predetermined date
- Futures contracts are very popular in markets with commodities such as crude oil, wheat and pork
- They deepen markets because they allow participants to buy contracts at a fraction of the asset price, known as a margin
Binance once again made African cryptocurrency news headlines after allowing its users in South Africa to trade in cryptocurrency futures. The development comes after Binance partnered with Fivewest OTC Desk Pty Ltd, a registered financial services provider in South Africa.
Binance users in South Africa will be able to trade in Binance USD-Margined and Coin-Margined Futures.
“We are pleased to be relaunching crypto futures in partnership with Fivewest as it delivers on our core focus on ensuring local industry compliance while enabling greater access to digital assets for South Africans,” said Hannes Wessels, the Binance South Africa Director.
Binance has worked with regulators in South Africa to ensure compliance with cryptocurrency derivatives products. Regulators in the country have warmed up to cryptocurrency and digital assets, advising banks and financial services providers to accommodate digital assets and their facilitators.
What are crypto futures
Cryptocurrency futures are derivative products that allow market participants to enter into contracts for future purchase or sale of underlying assets (cryptos) at an agreed price on a predetermined date. Users can agree to a contract to buy units of cryptocurrency in the future.
Futures contracts are very popular in markets with commodities such as crude oil, wheat and pork, among others. They are sold on the basis of a future in international markets.
Futures contracts deepen markets because they allow participants to buy contracts at a fraction of the asset price, known as a margin. For example, one can pay something like $1 per unit to secure a future contract for the purchase of a $100 asset.
Profit in the futures contract depends on the asset price movement between the date the futures contract is locked in and the date the futures contract matures or is settled.
For a buy contract, if the agreed price is lower than the prevailing market price at the date of maturity, the profit is the difference (saving) in price less any costs of the futures contract, including margin costs. Futures contracts are solid commitments to buy or sell the underlying asset. Binance settles crypto futures in cash rather than the underlying digital asset.
How crypto futures improve the market
Crypto futures are such an important inclusion in the market because they are capital efficient. Through crypto futures contracts, users can gain exposure to underlying assets without having to fork out the entire amount required to own the asset.
In this way, traders make gains in more ways than just holding cryptocurrencies. The creator of the contract (writer) also makes a gain through margin payments.
Crypto futures are ideal for people who intend to either purchase or dispose of their holdings at know dates in the future, especially where they have a target amount in mind. Considering the effects of the crypto winter and volatility experienced in the market, crypto futures would be the perfect product to help market participants to preserve value or make bargain buys.
The tone set by the South African Reserve Bank (SARB) on the inclusion of digital assets with appropriate risk management is a shot in the arm of cryptocurrency exchanges and providers like Binance. The company has welcomed developments in South Africa and quickly made moves to take advantage of the new outlook for cryptocurrencies. Binance has been very active in other parts of Africa, pushing a cryptocurrency education tour in Francophone Africa.