Virtual Asset FAQ

What is Virtual Asset

“Virtual assets” refers to digital representations of value which may be in the form of digital tokens (such as utility tokens, stablecoins or security- or asset-backed tokens) or any other virtual commodities, VA assets or other assets of essentially the same nature, irrespective of whether or not they amount to “securities” or “futures contracts” as defined under the Securities and Futures Ordinance (SFO), but excludes digital representations of fiat currencies issued by central banks.

VA, is a form of virtual assets. Global VA asset market cap hit record USD3 trillion in November 2021, with 10,000+ types of VAs and 600+ exchanges.

Bitcoin, Ether are among the most representative VA assets in current market


Key Factors Influencing VA’s Price

1. Money Supply

More money supply usually brings higher Bitcoin/Ether prices, boosted by monetary easing

2. Sentiment

Sentiment in stock market is transmitted to the VA in a nontrivial way

3. Regulations

Government policy and attitude may affect Bitcoin/Ether prices.


Risk related to the underlying Virtual Asset (“VA”)

VA prices are extremely volatile and affected by numerous events or factors that are unforeseeable and potentially difficult to evaluate. They include changes in overall market sentiment, changes in acceptance of the VA, regulatory changes, security failures of the underlying network or related trading platforms, related fraud, market manipulation, contagious effect from collapses of major players in the VA market and other further development of the underlying network. In particular,

VA is a relatively new innovation and part of a rapidly changing industry. VA and the VA industry are therefore subject to substantial speculative interest, rapid price swings and uncertainty. In addition, VA operates without central authority (such as a bank) and is generally not backed by government. The slowing, stopping or reversing of the development or acceptance of a particular VA may adversely affect the VA’s price.

Regulations on VA are still developing and increasing. Regulatory changes or actions may materially alter the nature of an investment in a VA, restrict the use and exchange of the VA, or restrict the operations of the blockchain network or venues on which the VA trades, in a manner that adversely affects the value of the VA. In extreme cases, governmental interventions may make VA illegal.

VA trading venues are relatively new and, in most cases, largely unregulated. They are typically not subject to the same robust regulation as trading platforms in traditional financial markets, and are not typically required to protect customers to the same extent that regulated securities exchanges or futures exchanges are required. VA trading platforms may therefore be more exposed to theft, fraud, failure, security breaches, market manipulation and insider dealing, compared to established, regulated exchanges for securities, derivatives and other currencies. In particular, some VA trading venues collapsed or closed due to the above issues. As a result, the prices of VA may be subject to larger and/or more frequent sudden declines than assets traded on more traditional exchanges.

VA is vulnerable to cybersecurity attack. Cybersecurity risks relating to a VA’s underlying network and entities that custody or facilitate the trading of the VA may result in a loss of public confidence in the VA and a decline in the value of the VA. In particular, malicious actors may exploit flaws in the VA’s underlying network to, among other things, steal VA held by others, control the network or issue significant amounts of the VA in contravention of the network protocols. The occurrence of any of these events is likely to have a significant adverse impact on the value and liquidity of the VA.

As VA network is generally an open-source project, the developers may suggest changes to a particular VA’s software from time to time. If the updated software is not compatible with the original software and a sufficient number (but not necessarily a majority) of users and miners elect not to migrate to the updated software, this would result in a “hard fork” of the VA’s network, with one prong running the earlier version of the software and the other running the updated software, resulting in the existence of two versions of VA network running in parallel and a split of the blockchain underlying the VA network. This could impact demand for the VA and adversely impact the VA’s prices.

Under exceptional market circumstances, the price of VA and hence the price of VA futures may drop to zero in a short period of time. An investor should be prepared to lose the full principal value of their investment in virtual asset futures ETFs within a single day.


What Are VA Futures

VA futures allow traders to gain exposure to VA currencies without the need to actually hold them.

It is a similar concept to stock index or commodity futures contracts, where an investor can take risks on an asset’s future value. However, the value of a VA currency may not fully correlate with the price of the VA futures contract. When a VA futures contract expires, the trade is settled in cash rather than the actual digital asset.

The dominant aspect of VA futures trading is that it can protect investors against adverse market conditions. Traders can sell high and buy low to profit from the price difference, which is known as short selling. Essentially, VA futures contracts enable market participants to make profits regardless of the price direction of the underlying asset.

Due to the high volatility associated with derivatives trading, investors must manage risks prudently, and it’s imperative to learn the basics of VA futures before investing.


How Do VA Futures Work

The most noteworthy aspect in VA futures trading is that you take risks on the price changes in a VA currency without holding it.

Let’s consider a simplified example. Mr. A entered a long futures position when a VA currency was trading at $10,000 while Mr. B opened a short position at the same time. Then, prices moved up and Mr. A and Mr. B decided to settle their positions at $15,000. In this case, Mr. B, who is holding a losing trade, will have to pay the exchange the deficit loss of $5,000 ($15,000-$10,000 = $5,000). Mr. A, on the other hand, will receive a profit of $5,000 from the exchange.

Leverage is another key aspect of futures trading. If Mr. A chose to buy the VA currency in the spot market, he would have to spend $10,000 per unit. However, in the futures market, he could gain the same exposure to the VA currency at a fraction of its market value.


Basic Concepts of VA Futures Trading

Potential traders have to familiarize themselves with the essential concepts that are involved in VA derivatives to cope with their complexity. Here are a few terminologies that can get you closer to becoming a successful VA derivatives trader.


The lure of leverage draws traders to the futures market, making it relatively capital-efficient. For example, to buy 1 BTC on the spot market, you'd need tens of thousands of dollars. But with a futures contract, you can open a long BTC position at a fraction of the cost thanks to leverage. The higher your leverage is, the less money you will need to deposit. In contrast, leverage is not available in spot trading so if you have only 100 USDT in your spot wallet, you can afford only 100 USDT worth of Bitcoin.

Margin Requirements

Initial margin means the amount needed to open a futures position, while maintenance margin refers to the minimum amount needed to keep the position open. Maintenance margin checks are continuous and help in margin utilization calculation. When a trader's maintenance margin limit is hit, the open position gets liquidated.

Funding Rates

VA perpetual contracts don't settle like traditional futures contracts. Therefore, exchanges require a system to ensure that index prices and futures prices converge regularly. Such system is called funding rate. Funding rates are calculated based on the price difference between spot and futures markets. Investors will either pay or receive funding payments relative to the open market positions. Funding rates may have adverse effects. For instance, funding rates may surge in an overheated bull market, making it costly for traders to hold long positions.


Pros & Cons of VA Futures Trading

Lucrative endeavors such as VA futures trading come with their fair share of advantages and disadvantages. Here are the pros and cons of trading such derivatives.


  • VA futures trading allows you to bet against the market. You can go long or short to profit from either direction of the market.

  • With the use of leverage, traders can gain significant exposure to an asset at only a fraction of its total cost.

  • Traders can use VA futures trading as a hedge against spot markets.


The high volatility in the VA currency markets can be a blessing or a torment to traders because the direction of an asset is not guaranteed.

VA futures contracts involve leverage, making them one of the riskiest instruments. Under certain circumstances, the exposure to leverage can lead to losses in excess of initial margin. Traders should therefore implement a solid risk management strategy.

Investing in VA futures contracts is suitable only for investors with a high risk tolerance and sufficient assets to be able to withstand potential losses. You should only invest funds that you can afford to lose without affecting your life, and since you cannot expect to receive returns on every trade, you should invest only a portion of these funds in any single trade.


Comparison of investment in VA spots/ VA futures/ VA futures ETF/VA spots ETF in Hong Kong

In the spot market, you buy and sell virtual asset currencies such as Bitcoin and Ether for immediate delivery. In other words, virtual asset currencies are directly transferred between market participants (buyers and sellers). In a spot market, you have direct ownership of virtual asset currencies and are entitled to economic benefits, such as voting for major forks or staking participation.

Futures-based ETFs are distinguished by the fact that they provide traders with accessibility to futures contracts rather than any securities. Futures contracts are legally binding agreements to acquire or sell a product, asset, or investment at a fixed price at a pre-defined date. They have a distinct risk level than spot trading.

In contrast to monitoring the spot market value of the underlying commodity, a futures-based ETF follows futures contracts via the CME-listed futures markets. As a result, the value of the ETF will differ from the value of virtual asset.

In the Spot ETF market, you can buy or sell ETFs through your broker the same way as you buy or sell other securities, ETF. The relevant ETFs are traded in board lots and the board lot size is set by the ETF managers.



Investors can trade VA futures contracts、spot ETF on many exchanges, and may benefit from such trading if they have a good understanding of the basics of VA the relevant products. Losses can be avoided for those with the proper knowledge and a solid risk management strategy. Before trading any VA related products, investors should therefore fully understand the characteristics and risks of it, and carefully consider whether such trading is suitable in light of their own financial position and investment objectives.