Futures are a type of contract in which a buyer and a seller agree on a price for a particular item to be delivered on a certain date in the future, hence the name.
A security based on bitcoin, the digital currency that has exploded in popularly and volatility this year, was to begin trading on a major U.S. exchange for the first time on Sunday. The Chicago Board Options Exchange, one of the nation’s largest traders of options and futures, planned to open up bitcoin futures for trading at 5 p.m. CST. The CBOE futures don’t involve actual bitcoin. They’re securities that will track the price of bitcoin on Gemini, one of the larger bitcoin exchanges. Another large futures exchange, the Chicago Mercantile Exchange, will start trading its own futures on Dec. 18 but will use a composite of several bitcoin prices across a handful of exchanges. The price of a bitcoin began the year below $1,000. As of 3 p.m. Sunday, a bitcoin was quoted at $15,375 on the bitcoin exchange Coindesk.
Futures are a type of contract in which a buyer and a seller agree on a price for a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security but are most famously used in commodities such as wheat, soy, gold, oil, cocoa and, as dramatized in the Eddie Murphy and Dan Aykroyd movie ”Trading Places,” concentrated frozen orange juice. The futures signal greater mainstream acceptance of bitcoin but also open up bitcoin to additional market forces. The futures will allow investors to bet that bitcoin’s price will go down, called shorting bitcoin, which currently is very difficult to do.