Futures-based ETF: What is it? How did it work?

Futures-based ETFs are funds that invest in futures contracts of one or more cryptocurrencies. In other words, agreements to buy or sell cryptocurrency at a fixed time in the future.

For more detailed information about the Futures-based ETF concept, please check out upcoming content with AZCoin now!

Do you know about ETF?

First, let’s briefly talk about the concept of an ETF. In case you don’t know, this investment fund is organized and designed to simulate a reference index of a certain asset type. Accordingly, these asset types in normal ETFs will include stocks, gold, oil,… and more.

These investment funds will often be issued by organizational units in the form of fund certificates and sold similarly to regular stocks on the stock exchange. Investors who want to join the fund only need to buy and own this fund certificate.

Some information related to Futures-based ETFs that you can read more about: Multi-Crypto ETF, Grayscale Bitcoin Trust (GBTC), Bitcoin ETFs,…

What is a Futures-based ETF?

The operating mechanism is similar to the regular ETF we learned about earlier, but the Futures-based ETF will focus more on cryptocurrencies. Similar to regular ETFs, these funds will have no limit on the type of cryptocurrency they will invest in.

The most special thing about Futures-based ETFs is that these funds do not directly hold crypto assets but instead hold futures contracts. If you don’t know the concept of futures contracts, these are agreements to buy or sell assets at a predetermined price at a specific time in the future.

In other words, this is a cryptocurrency ETF that does not directly hold cryptocurrency but instead bets indirectly on future cryptocurrency prices. Your investment in this fund means you own part of the fund through fund certificates.

What are the benefits of participating in Futures-based ETF?

Participating in Futures-based ETF funds brings many benefits, especially for new investors who do not have much experience with the cryptocurrency market:

• Easy to participate: All investors can participate in the fund easily by owning fund certificates by buying and selling them on stock exchanges.
• No need to directly hold assets: With ETF funds, investors will not be responsible for managing and protecting invested assets. This also reduces certain risks, especially in the extremely complex cryptocurrency environment.
• Has regulatory standards: ETFs are often subject to regulatory and reporting standards, which can provide transparency and reliability for investors.
• Legal assurance: Most Futures-based ETF funds, if approved, will be managed by competent state agencies, ensuring investors do not have to worry about legal risks.
• Portfolio diversification: Participating in Futures-based ETFs allows investors to diversify their portfolios by adding similar crypto assets to other asset classes. other traditions.

Limitations from Futures-based ETF

Of course, besides the advantages and benefits that Futures-based ETF possesses, it also has many limitations and disadvantages that we can mention such as:

• Paying management fees: Unlike normal investing where you only have to pay a one-time transaction fee, when participating in a Futures-based ETF you will have to pay a management fee, which is an annual fee. and will gradually increase over time.
• Restrict trading hours: Although the cryptocurrency market operates 24/24 allowing investors to participate at any time, ETF funds will only trade depending on opening and closing times. door of the stock market.
• Limited liquidity: Since cryptocurrencies are still not popular and accepted in many countries, this can cause instant payouts.
• Generating poor profits: Because the fund invests in futures contracts, it will need to handle the contracts before they expire. This process plus management fees can greatly affect profits. Gained profits, in some unexpected cases, can cause losses.

The above are just some of the limitations and certain risks. There are still other limitations, but they will depend significantly on the organization and scale of the Futures-based ETF.

Conclusion

So together we have gone through all the most comprehensive and easy-to-understand content for the Futures-based ETF concept. Hope you enjoy this content and see you again in other even more interesting content at AZcoin.