Funds must be fully cleared in your account before they can be used to trade any futures contracts, including bitcoin futures. ACH and Express Funding methods require up to four business days for deposits to clear. Wire transfers are cleared the same business day. May 09, · The minimum fluctuation for a futures contract is $25 per contract and $5 for calendar spreads. Trading times for bitcoin futures, which can be found on . Jan 30, · 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) .
How to trade bitcoin future contractsHow to Trade Bitcoin Futures: A Step-By-Step Guide
Many of the Bitcoin traders and investors follow a strategy where they buy Bitcoin when the price drops and sell it when the price goes up. Why not have a futures contract which will allow you to buy or sell Bitcoin at a fixed price even in the future? When two parties enter into an agreement, they should buy or sell their cryptocurrency at the fixed price irrespective of the market price on the day of contract execution. Using futures contracts will help the traders to hedge the changing prices of the assets.
Now you must be wondering what is it all about? Bitcoin Futures are futures contracts that allow speculators to place a bet on the price of Bitcoin without having to own it. The first Bitcoin Futures was available to trade on December 10, No cryptocurrency trading platform or wallet is required in Bitcoin Futures Trading.
It is because either the futures contracts settle financially on the delivery date or are balanced by traders reversing out of their positions as the delivery date approaches.
Suppose the buyer or seller of a bitcoin futures contract settles for a price and on the contract execution day, either of them sees a profit, then the difference between the purchase price and the settlement price is paid to the futures contract holder.
Investors or traders who are participating in Bitcoin Futures can bet at the Bitcoin price for a certain period of time without having to own Bitcoins. Investors can either use a long trading method where the participant expects the price to increase or they can use a short trading method where they can eliminate the potential losses if the Bitcoin price goes down.
If you expect that the prices of Bitcoin will rise up, then you will wait for a longer time. In such situations, you will buy a call option. A call option enables you to buy Bitcoins at a predetermined price in the future.
In another scenario, if you expect the prices of Bitcoin will fall, then you will buy a put option. A put option enables you to sell Bitcoin in the future at a price that is higher than the future price you expect.
Using long is quite straightforward where you buy the asset with the only difference being that it enables you to have more leverage. There is an expiration date for both the call and put options. Between these 6 months, you can sell the Bitcoin at any time.
January 1, , then using the call option is quite worthless. When such situations appear, then two things can happen:. Hence, if the price of Bitcoin is falling before the expiration date, the options become worthless. What is the Marubozu candlestick? To process this transaction, you choose an exchange like CME.
The CME exchange will compensate your contract partner for this. They will take the difference which is USD from your so-called margin account and give it to Mark.
This kind of settlement is performed on the expiration date of the futures contract as well as every day of trading based on the current price of Bitcoin. In order to ensure that you have money in your margin account, you should put up an initial margin at the beginning of the contract.
The minimum margin is also defined by the broker. If your money in the margin account falls from your initial margin to the maintenance margin or minimum margin, then the exchange triggers a margin call where the broker requests you to fill your margin account to the initial margin.
If you are unable to fill the margin account even after the margin call, then the broker has the right to sell your Bitcoins at a price that is more unfavorable than waiting for a good opportunity. So, it is better to avoid margin calls. So, Bitcoin Futures trading can be done on various places which include:. While you know how to trade Bitcoin Futures, it is also necessary to understand where to trade them.
The latter is known as hedging. One popular variety of derivatives used for hedging are called futures. A future is a contract between two parties in which one party agrees to pay the other a predetermined amount of money for an underlying asset at a specific point in time. Trader A is a producer of pork bellies. In order to insure herself against a price drop in pork bellies in the future, she enters a futures contract with Trader B.
Trader B uses these pork bellies to manufacture sliced breakfast bacon. Thus, he is not worried that prices might fall in the future — his worry is that prices will go up. Both traders agree that Trader A will sell a metric ton of pork bellies for 1, USD 3 months from now. This increases security for both of their businesses.
Because a futures contract is a binding contract between two parties, neither party can drop out of the contract: Even if the price for pork bellies is 1, USD at the time of execution, trader A is still contractually obliged to sell for 1, USD. Traders A and B in the previous example are hedgers. However, futures contracts, once they exist, can also be bought and sold in their own right.
This is where futures get interesting for speculators. He can then sell the contract to bacon producers who want to buy pork bellies at 1, USD. The option to buy at a specified price in the future is known as a call option. The price of call options rise when traders assume that the price of the underlying asset will rise.
For her, having the option of selling pork bellies for USD in the future is highly attractive. Such options to sell are known as put options. The price of put options rise when traders expect the prices to fall of an underlying asset. That means that with a limited amount of capital, you can profit much more by buying options than assets — but also lose much more.
This is because a small difference in the price of the underlying asset immediately leads to a substantial change in the price of the derivative. These numbers are just approximate examples. The exact price of an option depends on the following factors:. As for why you should buy a put option instead of the asset itself, the answer is simple.
By buying the asset itself, you can never profit from falling prices. With put options you can, simply because their value rises as the price of the underlying stock is falling. In addition to this feature, they offer the same kind of potential for leverage that calls options do, as described above.
The price of put options is calculated in a similar manner, but with the important difference being that the intrinsic value is calculated as a predetermined price of the option minus the current market price of the asset — not the other way round as is the case for call options. It is important to note, however, that leverage means that your potential losses may also be much higher. If pork belly prices fall, call options lose value in a much higher proportion than the pork bellies themselves.
A Bitcoin futures contract is exactly what you would expect from the example above, replacing pork bellies with Bitcoin. It is a contract that enables you to buy Bitcoin at a predetermined price at a specific point in the future. Just like cryptocurrencies themselves, crypto derivatives have been adopted enthusiastically by the crypto community, and have been traded in an unregulated manner at first, and have even been used as a way to avoid the increasingly heavy regulation in the traditional financial sector.
And just like cryptocurrencies, they soon saw the first backlash from governments and authorities — take for example the Chinese cryptocurrency ban. Crypto derivatives were naturally discovered as an interesting addition to cryptocurrency exchanges first — probably as individual contracts between interested investors on these exchanges. The most common way to trade in Bitcoin and other cryptocurrency derivatives today is through contract-for-difference CFD contracts. These CFD contracts are usually traded over the counter OTC , meaning that they are not traded on exchanges but directly between participants.
Due to the high volatility exceeding 1. So far, these derivatives market have only been a niche occupied by crypto enthusiasts. That is until one of the newcomers, Crypto Facilities, and an incumbent in the derivatives market have joined forces: Crypto Facilities and the CME Group. The CME Group controlling, for example, the Chicago Mercantile Exchange that has been around for more than a century is a large-scale business that is officially regulated and audited by the US financial authorities.
It settles its contracts in fiat money rather than cryptocurrency, thus enabling non-crypto experts to speculate on Bitcoin. Such an official rate is a prerequisite of options trading in the traditional markets. More concretely, it is calculated based on all Bitcoin vs. USD trades on the participating exchanges between 3 and 4 p. London time. To calculate the BRR, the hour between 3 and 4 is divided into 12 intervals of 5 minutes.
For each interval, the volume-weighted median of the Bitcoin price is calculated statistically, the median, in contrast to the average, prevents single outliers from distorting the price.
The BRR is then the average of these 12 median values. Taken together, they control the largest derivative market in the world. London time only. Both can be monitored on the Crypto Facilities website. As we have seen above, a futures contract has an expiration date. This is the date on which you can purchase the ton of pork bellies for 1, USD — this is called a physical settlement. Alternatively, futures contracts can be settled with cash as well.
In these contracts, you receive the difference between the current price of the underlying asset and the price in your contract as cash. And this is where the BRR comes in. The BRR is the reference rate that is relevant for futures contracts and options in Bitcoin.
When a futures contract or call option expires on a certain day, the owner will receive the difference between the BRR and the Bitcoin price in the contract as cash if the BRR is higher than the price in the contract, of course.
The BRTI, in contrast, is a real-time statistic that is not binding for any contracts; it tells you for what price you can currently in this second buy or sell Bitcoin on the markets.
The CME Bitcoin futures contracts will be cash-settled , meaning that you will receive USD on the expiration date if your speculation was successful and you have not sold the derivative before the expiration date. You will not receive Bitcoin — that would be a physical settlement, even though Bitcoin is not a physical asset.