Until now, you must have known that trading on financial markets, especially crypto markets, is not only on the spot market.
The spot market is a market where the asset being traded is a real asset itself, such as Bitcoin which is traded directly.
However, outside the spot market, there is a derivative market, one of which is the futures market.
Futures Market Explanation
The futures market itself is part of the derivatives market throughout the financial market ecosystem.
The futures market is filled with trading financial assets in the form of futures contracts which are agreements.
An agreement is an agreement to sell or buy an asset in the future at a predetermined price at this time.
A futures contract is a tradable financial instrument in which the contract is based on an asset.
For example, one of the futures contracts that exist in the crypto world is the Bitcoin futures contract.
Experienced traders already know the nature and nature of this financial instrument.
But for those who don't know, this article will discuss the types of futures contracts based on their expiration time.
There are two most common types of futures contracts, namely perpetual type futures and quarterly or quarterly futures contracts.
Quarterly Futures Contract
This type of futures contract has an expiration time every quarter, which means every three months in one year.
Generally, contract expiration occurs in March, June, September and December.
Expiration occurs in that month because that month is the month in which the quarter ends.
The expiration dates for the month generally occur around the 24th, 25th, and sometimes the 31st, such as in December.
Examples of futures contracts with quarterly expiry times generally have a name or ticker with expiry times.
On the FTX exchange, for example, Bitcoin futures contracts with an expiration time in June or the end of the second quarter, are written as BTC-0625.
Contracts are in the futures column and generally mean Bitcoin futures contracts with an expiration date of June 25.
Possible Expiry Time
When the contract ends, there are three possibilities that can occur, namely allowing the contract to end without value or loss, rolling, or making a settlement.
Rolling is a way of maintaining a position where the contract owner continues his position in the futures market with another contract that has a longer expiration time.
An example is when the March futures contract expires, the owner can resume his position by completing the March contract and converting it to the June contract.
This is done with the help of an exchange or broker who keeps the position unchanged because it is not buying like buying a futures contract in the first place.
Settlement or settlement is the second way to liquidate a position in order to take advantage or loss from a futures contract.
There are two ways of settling a futures contract, namely through physical settlement or settlement with the underlying asset and cash settlement or settlement with money.
Physical settlement generally occurs in real physical assets such as in commodity markets and occurs automatically.
With this settlement, the contract owner will settle his ownership on a deduction through the underlying asset of the contract.
For example, if the March Bitcoin futures contract expires and there is a profit, the exchange or broker will automatically give the profit in Bitcoin.
However, if there is a loss, the exchange or broker will reduce the Bitcoin owned by the contract owner, according to the loss in the futures contract.
Cash settlement is a direct cash settlement, where when the futures contract settlement occurs on the expiry date, the loss or gain is given in the form of money.
For example, if the March Bitcoin futures contract expires and there is a loss, the exchange or broker will automatically deduct the money it has.
However, if there is a profit, the exchange or broker will automatically reward you in the form of money.
Perpetual Futures Contract
Apart from quarterly futures contracts, there is one other type most frequently used by traders in the financial markets, namely perpetual futures contracts.
This contract, in contrast to a quarterly contract, has no expiration date, so the name is perpetual, which means it never ends.
Generally, these futures contracts are written with the suffix "PERP", for example, Bitcoin futures contracts will be written as BTC-PERP.
With this contract, there is no expiration time so it moves like a real asset and is driven by the supply and demand of nature.
These contracts are generally also used to hedge or secure a position in the spot market, for the most part reliable traders.
However, hedging is not limited to perpetual futures contracts, as many traders also use quarterly futures contracts.
All settlement and nature of futures contracts on exchanges today, especially on crypto exchanges, will be implemented and happen automatically through the exchange.
However, knowledge about it is very important to understand what instruments can be used to generate profits.