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Why Trade Bitcoin Futures?
Final Settlement Price Calculation Comparison. Valuation Approach. Contract Unit. Contract Term. Weekly, monthly first three most near months , or quarterly. Trading Limits.
CBOE Releases New Details on Bitcoin Futures Contracts
Gemini Exchange Auction Rate. Gemini 9. Crypto Facilities Ltd. Calculation Period. Time Published. Options exchange CBOE has released early specifications for its planned bitcoin futures product.
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- CBOE Releases New Details on Bitcoin Futures Contracts - CoinDesk.
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Read more about Disclosure The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. With Bitcoin now having been in existence since and become a sizeable instrument by market cap comparable to some of the largest listed companies on the U.
S equity markets, it comes as a little surprise that futures exchanges have moved ahead on offering investors with the option of Bitcoin futures contracts. The Cboe futures exchange launched Bitcoin futures on 10 th December and is considered to be the first step in the evolution of Bitcoin into a mature asset class, with the futures market providing investors with greater liquidity, transparency and an efficient price discovery system.
Bitcoin Futures -
CME Group followed Cboe with the launch of Bitcoin futures on 18 th December , with both exchanges providing hedgers with a platform to hedge existing exposure to Bitcoin, while both allow exposure to Bitcoin without actually owning Bitcoin, opening the door for the speculators. For Bitcoin, miners will receive some relief from the launch of the futures market, with the sizeable investments into mining equipment, not to mention exponential gains, needing some protection against price declines, while the speculator may be looking for the rally to continue and reach the stratospheric heights predicted by some in the marketplace, or in some cases, for the bubble to burst.
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Both exchanges have opened the door for the larger institutional investors to get in on the Bitcoin game through a more regulated, transparent and liquid market. Since Bitcoin is a virtual currency, settlements will be cash-based and in U. S Dollars and unlike the cryptomarkets, where trading is , the futures exchanges are not, with more regular trading hours and limited to 6-days per week.
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.