Its price is quoted in US dollars per Samsung Galaxy bitcoin. The multiplying effect from the contract size and tick movement can have a large impact on the profit and loss of a futures contract. Suppose a trader buys one bitcoin futures contract at $26,000, and the current price of bitcoin futures has risen to $30,000. The profit and loss of one contract is obtained by multiplying the dollar value of a one-tick move by the number of ticks the futures contract has moved since purchasing the contract.

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The notional value of a contract refers to the product of the contract unit and the futures price. 150,000. The notional value can help gauge the hedge ratios versus other futures contracts or another risk position in a related underlying market. Consider an S&P 500 futures contract trading at $3,000. The contract unit of this contract is $50 times 1 index point, where $50 is also known as a multiplier. Value at risk (VaR) is, with a certain level of confidence, a statistical measure of the maximum potential loss of funds or portfolio over a given time period. It is calculated as the value at risk (VaR) divided by the contract notional value. The hedge ratio is a risk management tool used to calculate the amount of exposure needed to be hedged in a portfolio.

The hedge ratio can be a useful tool for managing risk in a portfolio, as it can help to identify the appropriate level of hedging required to limit potential losses. Every crypto futures contract has a minimum price fluctuation, also commonly known as a tick. Take, for example, a bitcoin futures contract, where its minimum tick size equals $5. It refers to the minimum increment of price movement possible in trading a futures contract.

If a trader neither offsets nor rolls over their position, the contract expires and they proceed to settlement. The party with a short position is obligated to deliver the underlying asset under the settlement method specified in the contract. As mentioned, futures are originally designed for hedging risk. The most ideal case is a perfect hedge, where a risk can be completely eliminated. The risk could be associated with price fluctuations in various markets, such as commodities like oil and corn, foreign exchange rates, or the overall stock market. Futures trading mainly serves three purposes: hedging, speculation, and arbitrage. Why Trade Crypto Futures?