Trade futures with bitcoin

Best Bitcoin Futures Trading Exchanges

As we explained in our post about derivatives, a derivative is a financial term for something that “derives” its value from its relation to another asset.

Futures are one of the top three derivative contracts, as well as one of the oldest around. They were originally developed in order to help farmers secure themselves against changes in the crop prices between planting and the time when they could be harvested and sold on the market. This is the reason why the majority of futures is focused on things such as grains (corn) and livestock (cattle). Of course, the futures market expanded over the course of time and now includes contract connected to a wide variety of assets, including but not limited to:

• energy (oil)
• precious metals (gold)
• industrial metals (steel)
• stocks (S&P 500)
• bonds (treasury bonds)

A futures contract is a forward contract with which commodities or financial products are traded at a predetermined price at a specific future date, i.e. sold or disposed of. Forward contracts are used on the one hand to hedge against price fluctuations. For example, airlines can protect themselves against the negative consequences of price fluctuations in kerosene. What is required is at least a clear opinion on future price developments. In theory, this should make trading quieter and the future more predictable for companies.

Due to their design, however, futures are also ideally suited for speculation. Due to the leverage effect, strong profits are possible – but above all also losses that can massively exceed the input value.

And trading has not yet become particularly quiet. The price of the forward contract, which runs until mid-January, shot up by a good quarter last Monday. The CBOE had to interrupt trading temporarily. After all, the price differences at Bitcoin on various trading platforms, some of which have been very high so far, have diminished somewhat.

How Futures Trading Works

Futures, like other derivatives, have limited lifetime. When the time expires, its value comes down to zero.

There are three ways to trade with futures.

Trading on your own – user can open its own account and use it for trading. This option carries the highest risk as the trader takes responsibility for managing investment, ordering trades, maintaining margins and analyzing the market.

Using a managed account – user can get a managed account. The user’s broker would have the permission to trade on his behalf, according to the agreement they made. This account carries less risk, but the owner would have to pay a management fee and still is responsible for any losses incurred.

Joining a commodity pool – this way of trading with futures carries the lowest risk. The money is put into one wallet from all the participants and traded as one. The profits and losses are spread across all participants equally. Commodity pools also have the ability to invest in a wide variety of futures.

How is the Bitcoin Future price determined?

As there is currently no reliable centrally traded Bitcoin exchange price, the CME uses prices from various platforms. Of course, it is quite possible that the prices on the CME will be the basis for other exchanges in the future. The CME currently sets two prices, the Bitcoin Reference Rate and the Bitcoin Realtime Index. For the first price, the base price of the Bitcoin is published once a day. However, this quotation is not sufficient for ongoing trading. Therefore the real-time prices are formed as a kind of mixed price from the stock exchanges.

As already mentioned, a cash settlement takes place at the end of the contract term. This means that the investor does not have to pay the Bitcoins, but a cash settlement over the current price difference takes place. This was deliberately chosen. In addition to purely practical considerations, institutional investors who are not permitted to invest directly in crypto currencies for regulatory reasons can also invest in digital currencies.

What are the advantages of Bitcoin Futures?

So far, there are hardly any opportunities for large investors to shorten Bitcoins. But they would have to, if they wanted to enter the market on a larger scale. This is also necessary when brokers place derivatives on Bitcoins, such as CFDs or knock-out certificates. There is also the possibility of “netting”. Brokers offset the long and short positions of customers against each other. The open difference is covered by buying real Bitcoins. Of course, this is not the most optimal solution. It would be better to hedge yourself on a futures exchange. This is at least partly possible with the newly launched Bitcoin Future trading.

In the vast majority of cases, investors have also burned their fingers when Shortening Bitcoin. The price has risen too steeply and too quickly. It is therefore not surprising that most issuers offer no products at all or at least no short derivatives on Bitcoin, let alone other crypto currencies such as Ethereum.

Enormous volatility also in Bitcoin Future trading

Bitcoin trading is known for its enormous volatility. Price changes of more than five percent daily are the rule instead of the exception, which is rather not the case in stock trading. In the new Bitcoin Future trading, volatility on the CME was even 10 percent in the first few hours. The high was quoted at 20,865 dollars, the low at 18,135 dollars. The activity can currently be seen mainly in the January contract. There are also contracts that run longer, such as February, March or June. But the trading volume in the longer-term contracts is almost negligible. By Monday afternoon there were only five and nine contracts, respectively, with a similarly high volatility. When the CBOE launched the first Bitcoin Future contract shortly before the CME, the demand from interested parties was so high that the website was temporarily offline.

Of course, the CME also has various requirements as to the range of fluctuation from which Bitcoin Future trading is to be discontinued. On a daily basis, this is 20 percent. In other words, if the future trading of the crypto currency reaches a volatility of 20 percent compared to the previous day, trading is interrupted for the rest of the day. If the volatility is between 7 and 13 percent, trading is interrupted for two minutes.

Long and short position

It is said that you take a long position (go long) if you now agree to buy an asset at a certain price to be delivered in the future (when the contract expires).

It is said that you take a short position if you agree to sell an asset at a certain price to be delivered in the future (when the contract expires).
Hedging and speculation

On the one hand, futures were designed to hedge price developments on the market. But while the producer and the end user continue to use futures as a management risk tool, investors and traders of all types use futures contracts for speculative purposes to generate profit by betting on the price of the underlying commodities.

What is of interest in this article is speculation. Let’s dive in:

In anticipation of a rise in asset prices, investors who speculate buy futures at an agreed price. As prices rise, the contracts become more valuable and can be sold at higher prices to other traders as soon as they expire or even before the expiration date.

In anticipation of a fall in prices, speculators sell futures at a certain price. As prices fall, contracts become more valuable and are bought by other investors at lower prices once they expire or even before the expiration date.

The gain for both investors is the difference between the futures price (the agreed price) and the spot price (the current market price).

Physical Delivery and Cash Settlement

Settlement refers to how futures contracts are consumed on the expiration date. You can use one of two settlement routes:

Physical delivery: occurs when the quantity of underlined asset is delivered by the seller.

Cash Settlement: The seller does not deliver the underlying. Instead, a cash payment is made.

The Risks of Futures Trading

The trading with futures carries a lot of different risks. Some of them are listed below.

Unlimited Liability

Unlimited liability is the main risk of trading with futures. This means that losses could be greater than the investment.

Leverage

The leverage in futures trading can go from 5 to 100 times. Sure, leverage is great when the price goes in the way trader expects, but if it starts moving against user’s favor, he could lose a lot of money.

Market

The market is very volatile in the trading with futures. This means that the trading strategy must be executed each time perfectly in order to minimize the risks.

There are also other risks which involve different policies, currency movement, and brokerage unprofessionalism.

Conclusion

Trading with futures can bring a lot of money, but it also requires a lot of knowledge in order to be done safely.

Inform yourself about the risks before opening your account. We really would not recommend trading without know what are you getting into.

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How To Invest In Bitcoin Futures

Prableen Bajpai is the founder of FinFix and Analytics Private Limited. She has 10+ years of experience as a finance, cryptocurrency, and trading strategy expert.

What Are Bitcoin Futures?

Bitcoin futures allow investors to gain exposure to Bitcoin without having to hold the underlying cryptocurrency. Like a futures contract for a commodity or stock index, Bitcoin futures allow investors to speculate on the future price of Bitcoin. The Chicago Mercantile Exchange (CME) offers monthly contracts for cash settlement.     This means an investor takes cash instead of physical delivery of Bitcoin upon settlement of the contract.

The Chicago Board Options Exchange (CBOE) offered the first Bitcoin contract on December 10, 2017, and discontinued offering new contracts in March 2019.     The CME opened its Bitcoin futures platform on December 18, 2017.   In addition to futures, it now offers options on Bitcoin futures. 

Meanwhile, Bakkt and Intercontinental Exchange offer daily and monthly Bitcoin futures contracts for physical delivery. 

Key Takeaways:

• As with a stock or commodities futures, Bitcoin futures allow investors to speculate on the future price of Bitcoin.
• CME offers monthly Bitcoin futures for cash settlement. 
• Bakkt offers daily and monthly Bitcoin futures for physical delivery. 
• CBOE once offered Bitcoin futures but discontinued offering new contracts. 
• Bitcoin is known for volatile price swings, which makes investment risky.

Understanding Bitcoin Futures

There are several benefits to trading Bitcoin futures instead of the underlying cryptocurrency. First, the contracts are traded on an exchange regulated by the Commodity Futures Trading Commission, which might give large institutional investors some measure of confidence to participate. Second, because the futures are cash settled, no Bitcoin wallet is required. No physical exchange of Bitcoin takes place in the transaction. 

Below are the contract details for Bitcoin futures offered by CME:

• Contract unit: 5 Bitcoin, as defined by the CME CF Bitcoin Reference Rate
• Price quotation: USD
• Trading hours: Sunday-Friday 6 p.m.-5 p.m.
• Product code: BTC
• Listed contracts: Contracts listed for 6 consecutive months and 2 additional Decembers
• Settlement Method: Financially settled 

Bitcoin Exchanges

Bitcoin volatility is a concern for potential investors and traders. Confidence is not helped by events such as the collapse of Mt. Gox or Bitcoin’s outlaw image among governments. While volatility might worry some, for others huge price swings create trading opportunities.

Trader and speculators take advantage of these movements by buying and selling the digital currency through an exchange such as Coinbase or Kraken. A bitcoin exchange operates somewhat similarly to online stock trading brokers where customers deposit fiat currency (or Bitcoin) to carry out trades. Smaller exchanges offer limited services, such as the ability to buy a handful of cryptocurrencies (such as Bitcoin, Ethereum and Ripple) and digital wallets to store them. Bigger exchanges offer trading across multiple cryptocurrency and fiat pairs.

How to Buy and Sell Bitcoin

Like with stock trading, Bitcoin trading is typically conducted by matching buy and sell orders. These orders enter the order book and are removed once the exchange transaction is complete. To get started, investors should deposit funds in U.S. dollars, euros or another currency supported by the exchange. Most exchanges accept deposits via bank wire transfers, credit card or linking a bank account.

Some exchanges offer trading on margin. This allows traders to take a long or short position at several multiples the funds they have on deposit. A maintenance margin would need to be maintained to cover potential losses. As the account is depleted, a margin call is given to the account holder.

El Salvador made Bitcoin legal tender on June 9, 2021. It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it. The U.S. dollar continues to be El Salvador’s primary currency.

Special Considerations for Bitcoin

A Bitcoin exchange (like any online trading firm) charges clients a fee to carry out trades. However, cryptocurrency exchanges face risks from hacking or theft. Prudent investors do not keep all their coins on an exchange. They use cold storage or hardware wallets for storage.

Now with Bitcoin futures being offered by some of the most prominent marketplaces, investors, traders and speculators are all bound to benefit. These centralized marketplaces will facilitate trade based on a trader’s outlook for Bitcoin prices, gain exposure to Bitcoin prices, or hedge existing Bitcoin positions. Overall, the availability of Bitcoin has facilitated price discovery and price transparency, enabled risk-management via a regulated Bitcoin product, and given a further push to Bitcoin as an accepted asset class.

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Trade Bitcoin Futures

Buy and Sell Bitcoin Futures based on your view of Bitcoin prices in a highly regulated marketplace. Transparent, Efficient Price Discovery with Deep Liquidity and Centralized Clearing.

WHAT IS BITCOIN FUTURES?

Bitcoin futures gives traders exposure to Bitcoin price movements without actually holding any Bitcoins. It provides a safe and regulated way to buy, sell and trade bitcoin futures contracts in a centralized marketplace where traders can implement their own trading strategies.

• Go long or short to take advantage of the daily price swings
• Gain exposure to bitcoin prices
• Hedge existing bitcoin positions

Open an Account

Simply fund your account with one of our highly capitalized Clearing Firms.

Select Your Platform

Choose from our wide selection of trading platforms powered by low latency datafeeds.

Trade Bitcoins

Go long or short on Bitcoin with a single click with fast order execution.

Safe & Secure

All our clients’ funds are kept in segregated trust accounts separate from the funds of our clearing firms

Qualified Support

A dedicated team with over a decade of futures trading experience to help you navigate the new Bitcoin Futures markets.

Fully Licensed Broker

Optimus Futures is licensed and regulated by the NFA. No need to worry about offshore cryptocurrency exchanges

Regulated Exchanges

All trading and clearing of Bitcoin futures contracts will be regulated by the Commodity Futures Trading Commission (CFTC)

Cash-Settled

No need to worry about delivery when trading Bitcoin Futures since they are cash-settled

Hassle Free

No need for a Cryptocurrency wallet that are prone to hacks. Just log in or open a live account in minutes

Bitcoin futures is listed and cleared on the CME under the ticker symbol “BCT” and will equal five bitcoins. See full contract specs below.

CME’s BTC contract will be priced off the CME Bitcoin Reference Rate, an index that references pricing data from four major cryptocurrency exchange: Bitstamp, GDAX, itBit and Kraken.

As of February 1, 2019, and subject to change, the Maintenance Margin for Bitcoin futures is 37%, where the Initial Margin for Hedger is 100% of the maintenance margin and the initial Margin for Speculator is 110% of that number.

Our FCM’s may require additional margins beyond the exchange minimum requirements.

In order to trade any futures contracts, you have to pay several transaction costs that make up the total commissions. Click Here to view the Pricing that applies to most retail traders and understand all the costs associated with trading Futures.

Click Here to view the full list of trading platforms that you can trade Bitcoin Futures on. Please note that you may need to contact us to enable your trading platform for bitcoin futures.

The minimum deposit to open an account for trading Bitcoin Futures is $50,000

Open an Account via Gain Capital, Ironbeam, Wedbush or TradeStation to trade Bitcoin Futures with Optimus Futures.

Bitcoin Futures Contract Specifications

CME Group Bitcoin Futures
Name	Bitcoin Futures
Symbol	BTC
Contract Unit	5 Bitcoins
Tick Size	$5.00
Tick Value	$25.00
Settlement	Financial
Trading Hours	Sunday to Friday 6:00 p.m CST to 5:00 p.m. CST
(60-minute break each day beginning at 5:00 p.m.)
VIEW ALL BTC CONTRACT SPECS

The Pros and Cons of Trading Bitcoin Futures

Is it really safe to start trading Bitcoin futures just yet?

What is Bitcoin?

A look into technology behind Bitcoin and its evolution

Contact Us

Want to Trade Bitcoin Futures but still have questions? Get in touch using the form below or feel free to call us directly at (800) 771-6748 and one of our client representatives will assist you.

Disclaimer: Virtual currencies including Bitcoins experience significant price volatility and fluctuations in the underlying virtual currency’s value. The time you place a trade for a virtual currency futures contract and the time you attempt to liquidate it will affect the value of your futures contract and the potential profit and losses related to it. Be very cautious and monitor any investments that you make. There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

Please be aware, however, that just because futures on virtual currencies, including Bitcoin, are traded on regulated futures exchanges does not mean that the underlying virtual currency markets are regulated in any manner. What occurs in a virtual currency’s underlying market will impact the price of a virtual currency’s futures contract.

The Cboe Futures Exchange LLC (CFE) and CME Group, Inc. (CME) have launched trading in Bitcoin futures. The CFE futures contracts are cash-settled contracts based on the Gemini’s auction price for Bitcoin, denominated in U.S. dollars. The CME’s futures contracts are cash-settled contracts based on the CME CF Bitcoin Reference Rate (BRR) and the CME CF Bitcoin Real Time Index (BRTI). The specifications for each Bitcoin futures contract, including margin requirements and price fluctuation limits, can be found on the CFE and CME websites.

Optimus Futures, LLC and/or our Clearing FCMs reserves the right to impose more restrictive limits that may, at our FCM’s discretion, be revised from time to time. Optimus Futures, LLC and/or our Clearing FCMs also has the contractual right to liquidate all or any part of your position(s) through any means available, without prior notice to you. The regular risks associated with trading commodity futures contracts also apply to the trading of Bitcoin futures. These risks can be viewed at the following link:

Customers choosing to trade Bitcoin futures should consider additional significant risks including, but not limited to: (a) Bitcoin futures contracts have not previously traded on a U.S.-regulated futures exchange and as such, there is no futures trading history in this product; (b) The price of the underlying Bitcoin and the indexes on which the futures contracts are based are highly volatile and unpredictable based on many factors; (c) Since a limited number of futures commissions merchants may offer trading in the Bitcoin futures contracts, there might be limited volume that might impact market efficiencies and price movements; and (d) The risk of loss can be substantial and could result in a customer losing more than the initial or maintenance margin requirement. As such, each customer should conduct his or her own due diligence prior to make a decision to trade in these products. See the link below from the National Futures Association for more information.

Additionally, the Commodity Futures Trading Commission («CFTC») has made available a Virtual Currency Resource Web Page designed to educate and inform the public about this topic and its risks. See the link below for further information from the CFTC.

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