What does expiration of a Bitcoin contract mean? What will happen?

Bitcoin contract trading is not to hold Bitcoin directly, but to predict its price trend and conduct risk hedging. Investors are concerned about price fluctuations rather than the asset itself. However, contract transactions have expiration dates, and it is crucial to understand what expiration of Bitcoin contracts means.

What does it mean when an expiration of a Bitcoin contract?

The expiration of the contract means that the expiration of the contract's validity period is over, and the trading platform will process all open contracts according to preset rules. On the expiration date, all Bitcoin contracts held (futures or options) will enter the settlement process, which may be cash settlement (profit and loss calculated based on the price difference) or physical delivery (actual delivery of Bitcoin), depending on the terms of the contract.

To avoid the confusion caused by expiration open positions, most platforms will set up a last trade or closing window before expiration, for example, only allow closing positions within the last few minutes. Therefore, be sure to manage your position before the contract expires, otherwise you may face forced closing or settlement at the market price.

Contract expiration is usually accompanied by the risk of market price fluctuations. Settlement prices are usually based on the market price at maturity, and investors in leveraged positions may suffer major losses or profits due to price fluctuations. The expiration date is a key node, and traders need to decide in advance to close positions, transfer positions (rolling contracts) or accept delivery to control risks and implement investment strategies.

What happens when the Bitcoin contract expires?

Expiration of Bitcoin contracts may lead to an increase in market volatility, which is manifested as:

1. Enhanced Volatility: Many traders adjust positions (held or unheld) before maturity, increasing trading volume in spot and futures markets, thereby increasing market volatility. The “Gamma squeezing” phenomenon is particularly obvious when open positions are large.

2. Price fluctuations: Exercising a large number of bullish or put options will significantly affect the market price. As the expiration date approaches, prices may tend toward the biggest pain point.

3. Changes in liquidity: After expiration, some funds may be withdrawn, and the other part may open a new contract, resulting in short-term liquidity changes, which in turn affects the price.

4. Current confidence and expectations changes: Price trend after expiration affects the short-term confidence of market participants. Strong prices may enhance bullish sentiment, while a sharp price decline may hit market confidence.

In short, expiration of Bitcoin contracts not only means the end of the trading cycle, but also reminds traders to deal with open positions in a timely manner, otherwise they may face the risks of forced settlement, potential losses or delivery. The delivery methods of different exchanges or contract products may be different. Investors need to understand the contract expiration date and exchange rules before investing, including cash settlement or physical delivery.

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