| Suppose someone will pay you one bitcoin next week, as per some private agreement. For this discussion, let's entirely ignore credit risk (the risk this person doesn't pay) but consider market risk. Like it or not, you carry the risk of bitcoin fluctuations. You might be comfortable receiving $6400 for your bitcoin next week. But bitcoin is volatile. Maybe bitcoin jumps to $8000. But maybe it drops to $4000. If you're comfortable giving up the upside, for a chance to prevent that downside, this bitcoin future is for you. You enter a future contract where you agree to sell one bitcoin in one week at a price of $6400 (if that's the going one week forward rate). In one week, your person pays you the agreed bitcoin, which you then sell to the exchange and receive your $6400. Meanwhile, for that week you can sleep at night knowing that if the bitcoin market crashes, you still get your $6400. And if the market rallies to a higher price, well missing out on that rally was the cost of being able to sleep at night. This is what commodity futures were originally used for, eg farmers agreeing to sell their stocks at agreed rates without worrying about market fluctuations. Companies do this too, eg hedging their cost of fuel to a known quantity in line with expected consumption. |