Volatility-index futures

Understanding Volatility-index futures

When venturing into the realm of option trading with cryptocurrencies, one phrase you will surely come across is Volatility-index futures. This term might seem complex at first. But let's unravel it in simple terms for beginners.

What are Volatility-index futures?

The Volatility Index, also known as the "fear gauge," is a measure for the expected volatility in a particular market over a certain period. Adding futures to it means that you're dealing with a type of financial contract. This contract obliges the buyer to purchase, and the seller to sell, the Volatility Index at a certain price set today, at a future date.

Volatility-index futures in Cryptocurrency Trading

In the world of cryptocurrencies, Volatility-index futures give traders the ability to speculate on the market's future volatility. If traders anticipate a high level of price fluctuations, they might purchase Volatility-index futures as a hedge against potential losses.

The Function of Volatility-index futures

From a functional perspective, these futures act as a risk management tool allowing traders to guard against future adverse market movements. They also offer potential profit opportunities by betting on market volatility. The beauty of Volatility-index futures is that they provide this coverage regardless of the market's direction. So whether the prices go up or down, traders could still profit if the market is volatile.

Last Words on Volatility-index futures

Thus, in relation to cryptocurrencies, Volatility-index futures can provide both a defensive shield against market shocks and a speculative tool to profit from market volatility. As always, they should be used with caution and within a well-defined trading strategy.