Jul 08, · With Bitcoin futures trading, traders can easily execute both short-term and long-term trading strategies or safeguard any existing Bitcoin holdings. Bitcoin Futures Trading uses margin and leverage trading to control the Bitcoin Futures positions. Hence, allows efficient use of account equity. Conclusion. As we have seen more number of. Nov 16, · Bitcoin futures are settled with cash. Because no active Bitcoin trading takes place in a futures market, agreements are satisfied by trading at future, pre-agreed prices. Another oft-cited advantage of the Bitcoin futures market is that the possibility of settling in cash means that no complex software or technological expertise is really. Jan 20, · Trading with Bitcoin futures still has a long way to come before it can be adopted by more brokers. Because of this, this type of futures contract is very scarce as a trading option on all trading platforms. If you’re interested in the more widespread spot bitcoin trading, here’s a nice guide on how to trade bitcoin.
Bitcoin futures trading how toHow To Invest In Bitcoin Futures
For those looking to enter the Bitcoin futures market, the first and fundamental question is whether the motivation is speculative or to protect current Bitcoin earnings from any downside. Choice of exchange may be considered arbitrary, but it would be best to go with the exchange with the greatest number of futures contracts issued, as both will be considered liquid from an investor perspective.
As we addressed before, contract sizes differ on the respective exchanges as do margin requirements, so these are also considerations. When looking to trade with margin, this is essentially the funding component of the trade executed on the futures exchange. As investors will not actually own Bitcoin itself, there is no need for the full value of the purchase to be paid in advance of the contract expiry date.
In the event of an investor holding a contract until the expiration date, the amount paid, if out of the money, is limited to the difference between contract price and the actual price. The margin is placed on a margin funding account as collateral for the trade. In addition to the collateral, also referred to as initial margin, investors are required to meet Mark-to-Market calls during the duration of the futures contract.
The reverse is also possible, where the exchange funds the account where the investor has margins in excess of the required amount.
In the event that the margin funding account falls below acceptable levels, the investor will then be required to fund the account to meet future MTM requirements. As we mentioned above, contract sizes between the 2 exchanges are different, with the minimum contract size on the CME Group exchange being 5 Bitcoins, compared with 1 Bitcoin on the Cboe exchange.
Final settlement on both exchanges is in U. S Dollars, with no actual Bitcoins held during the duration of the contract that requires settlement. With futures contracts being a 2-sided market, involving a buyer and a seller, counterparty risk on the final settlement is absorbed by the respective clearing houses and not the party in the money. For this reason, market liquidity is particularly important for those holding futures contracts as an inability to find a buyer can have quite dire consequences to the futures market and the price of Bitcoin itself.
Since the launch of the Cboe and CME Bitcoin futures, Bitcoin has received a double bounce in value, with the upside in Bitcoin coming off the back of Bitcoin futures valuations on each of the individual launch dates. With the general theory being that the smarter institutional money is going into the Bitcoin futures market, investors in Bitcoin will be looking towards the futures market as a guide to the future direction of Bitcoin, based on information available in the marketplace.
Added to the influence of both the Cboe and CME group Bitcoin futures is the fact that both provide investors with the option to go long or short. Increased appetite for lower prices would see the value of Bitcoin futures contracts decline, which would likely lead to price declines in Bitcoin itself.
For now, the number of contracts is considered relatively small and investors may take less direction from the respective exchanges, but we will expect the number of contracts to grow over time and provide some idea on which direction Bitcoin will take on a given day.
For those who are interested in Bitcoin and other cryptocurrencies trading, below is a list of our recommended brokers. Crypto Hub. Economic News. Expand Your Knowledge. Forex Brokers Filter. Trading tools. Macro Hub. Corona Virus. Stay Safe, Follow Guidance. World 79,, Confirmed. Fetching Location Data…. Get Widget. Understand Bitcoin Futures: A Step-by-Step Guide Futures markets have been in existence for the more mature asset classes, including commodities and equities for quite some time, however, Bitcoin futures launch is a major step towards the legitimisation of the most popular cryptocurrency.
Bob Mason. What is Bitcoin Future? In summary: Hedgers can go either long or short. In contrast, the Cboe futures prices are based on a closing auction price of Bitcoin on a single Bitcoin exchange known as the Gemini exchange. With cryptocurrencies having experienced significant volatility, it comes as no surprise that both exchanges have quite high margin requirements.
The size of a margin requirement is a reflection of asset class volatility. Furthermore, as bitcoin futures are exchange-traded, they could, in theory, become very liquid investment vehicles.
This, in turn, could attract more institutional investors to this new digital asset class. So far, liquidity in bitcoin futures has been rather low compared to other commodity futures. However, as they were launched in December, a month in which trading activity is generally lower than in other months, liquidity will likely pick up in the new year. Additionally, through the use of futures contracts, investors can now bet on the price of bitcoin declining by selling futures. More importantly, however, investors with exposure to digital currencies can now sell bitcoin futures to hedge themselves against a market crash.
This will allow more institutional investors to gain exposure to digital currencies going forward as they can reduce their overall crypto asset market risk by shorting bitcoin futures. Bitcoin futures are also a regulated financial product, which means that large institutional investors who are bound by right regulations are now able to bet on the price development of bitcoin by buying exchange-traded bitcoin futures.
This opens bitcoin up to a much larger investment community than purely high net worth individuals and hedge funds, as has previously been the case. If you are an active trader who wants to take profits through intra-day or intra-week trading of bitcoin, bitcoin futures might be the right option for you since you will be trading a relatively liquid, transparent, regulated investment vehicle.
Also, in this case, the margin trading aspect of bitcoin futures contracts may play in your favor as investors can buy one futures contract but only need to put down 35 percent CME and 44 percent CBOE as initial margin for the trade.
Currently, only a handful of brokers have enabled bitcoin futures trading for private clients. Ally Financial and Interactive Brokers are two of them. However, as the bitcoin futures market grows, more brokers will likely follow suit. If you are a private investor looking to buy and hold bitcoin as a long-term investment, you are better off buying the digital currency itself and storing it securely in an offline bitcoin wallet rather than purchasing futures.
Firstly, futures contracts are short to medium-term investment vehicles and secondly, when buying futures, investors are required to have funds in a margin account in case the value of the futures contracts drops. If the price drops to a certain level, the investor receives a margin call and needs to top up his or her margin account. Given the high volatility of bitcoin, margin calls will likely become a regular feature for bitcoin futures buyers.
Hence, for long-term holders who are happy to hold their coins through the volatile periods, simply buying and holding the actual digital currency itself is the smarter option. For institutional investors, bitcoin futures are the easier option to gain exposure to bitcoin and for many, it is the only option due to the tight regulatory requirement to which they need to adhere.
Perhaps the most impactful aspect of the launch of bitcoin futures contracts on the CME and CBOE is that it has opened bitcoin up to the entire institutional investment community. Want to stay abreast of investment opportunities in new finance?