A Bitcoin future will work on exactly the same principles as futures on traditional financial assets.
By anticipating whether the price of Bitcoin will go up or down, speculators will either go long or short on a Bitcoin futures contract.
For example, if an individual owns one Bitcoin priced at $18,000 (hypothetically) and foresees that the price will drop in the future, to protect themselves, they can sell a Bitcoin futures contract at the current price, which is $18,000.
Close to the settlement date the price of Bitcoin, along with the price of the Bitcoin futures contract, would have dropped. The investor now decides to buy back the Bitcoin futures.
If the contract trades for $16,000 close to the future settlement date, the investor has made $2,000 and therefore protected their investment by selling high and buying low.
This is a basic example of how Bitcoin futures work and the exact terms of each future contract may be more complex depending on the exchange, which will include minimum and maximum price limits.
