![]() How does this investment fit into your overall portfolio? What’s your individual risk tolerance? How much can you afford to risk (and how much could you afford to lose)? The risks and returns of a bitcoin futures ETF will differ from the risks and returns of buying bitcoin on the spot market, or when trading bitcoin futures. In the case of managed commodity futures funds, there is the management of the subsidiary commodity pool to consider as well as the management of the parent investment company. Management fees and other expenses also must be paid. The CFTC regulates commodity trading advisors and commodity pool operators-the people who make trading decisions and run the pools, respectively. In the case of managed commodity futures funds, though, investment companies commonly set up subsidiaries that serve as commodity pools.Ī commodity pool is an investment trust or similar entity that trades commodity futures contracts for the benefit of investors. Like mutual funds, ETFs have stated investment objectives and use professional money managers to meet those objectives. ![]() The shares issued by the ETF are securities that must be registered with the SEC. This situation is known as contango and means that traders suffer a small loss, or “pay a roll premium,” when contracts are routinely rolled from the expiring month to a future month.ĮTFs are investment companies regulated by the SEC. ![]() Many times, the selling prices of expiring contracts are below the purchase prices of contracts expiring further in the future. As contracts approach expiration, they must be settled or traded for new contracts. The contracts do not convey ownership in the asset itself. Leverage created by futures contracts can significantly amplify both gains and losses.įutures contracts are standardized, time-limited contracts that convey the right to buy or sell the underlying asset at some point in the future. With limited exceptions, the bitcoin spot market is not regulated by the CFTC or the SEC.īitcoin futures contracts - like other commodity futures contracts such as corn futures, market index futures, or gold futures - are regulated by the CFTC and must trade on CFTC-regulated exchanges.īitcoin and bitcoin futures can be highly volatile. Let's Break it Down…īitcoin is considered a commodity and is the underlying asset in bitcoin futures contracts.īitcoins that sell for cash are said to trade on the “spot” market. Plus, futures contracts don’t track spot prices exactly, so returns may never be as high as, or in sync with, spot market prices. But there are costs involved like “roll premiums” and management fees, among others. The pool in turn trades bitcoin futures contracts typically in an effort to mimic the spot price of bitcoin. Here’s how it works: An investment company creates a subsidiary that acts as a commodity pool.
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