What is the impact of contango on cryptocurrency futures trading?
Deena BandhuDec 26, 2021 · 3 years ago1 answers
Can you explain the effects of contango on cryptocurrency futures trading? How does it affect the market dynamics and trading strategies? What are the potential risks and opportunities for traders in such a market?
1 answers
- Dec 26, 2021 · 3 years agoContango plays a significant role in cryptocurrency futures trading. When a futures contract is in contango, it means that the market expects the price of the underlying asset to increase in the future. This expectation can attract more buyers, leading to increased demand for futures contracts. As a result, the futures price can be higher than the spot price, creating a contango situation. Traders can take advantage of this by buying the underlying asset at the spot price and selling futures contracts at a higher price. However, it's important to consider the potential risks. If the price of the underlying asset does not increase as expected, traders may face losses. Additionally, maintaining long positions in futures contracts can be costly due to the need for continuous rolling. Therefore, traders should carefully assess the market conditions and consider the potential risks and opportunities associated with contango in cryptocurrency futures trading.
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