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CATEGORY Trading

What you Should Know about Bitcoin Futures



December 25, 2017

It’s one of the hottest trades on the market.

I’m talking about Bitcoin – the cryptocurrency that’s taken the world by storm, creating overnight multi-millionaires along the way.  Even billionaires are jumping on board with one predicting that cryptocurrencies could be valued at more than $5 trillion by 2021, such as billionaire Michael Novogratz.

“Ten percent of my net worth is in this space. It’s the ‘best investment of my life,’” he says, as quoted by Coin Telegraph. “The Nasdaq got to $5.4 trillion in 1999, why couldn’t it be as big? There’s so much human capital and real money being poured into the space and we’re at a takeoff point.”

Former PayPal COO David Sacks recently tweeted that such currency is the “best candidate we’ve had in awhile for Web 3.0.”

“Bitcoin in 2017 is as real as Amazon or Priceline was in 1999,” says CNBC.

The beauty of it for investors -- there is no bank or government involvement.   There are no transaction fees and no real reason to give your actual name. Better yet, merchants around the world are just beginning to accept them, including web hosting to pizza and manicures.

It’s just about revolutionized transactions.

So much so that the number of businesses accepting cryptocurrency is growing by leaps and bounces. Microsoft, Intuit, PayPal, Dish Network, and Overstock.com are some of the biggest. At Microsoft for example, you can buy content in the Windows and Xbox stories. The company was even behind the launch of Azure Block Chain as a platform that allowed larger-scale businesses to use block chain to facilitate settlements.

Japan for example just legalized crypto currency as a payment method. In fact, Japan became accepting Bitcoin as legal currency with major retailers backing the law. Russia is seeking to recognize it, too as a legal financial instrument in 2018, as a way to tackle money laundering.

Canada, the United Kingdom and the U.S. are on board, too.

In short, it’s been an exciting time to be long the digital currency.

By December 2017, financial firm CME Group launched bitcoin trade futures shortly after CBOE Global Markets, underscoring the crypto currency acceptance.

According to th4e CME Group, as noted by Business Insider:

  • Each contract is composed of five bitcoin. 
  • Each tick (the minimum fluctuation) will be $5 per bitcoin, amounting to $25 per contract. This means that every time the contract moves by the smallest increment a trader will gain or lose $25 per contract they hold. 
  • Bitcoin futures will trade on CME Globex and CME ClearPort from 5 p.m. to 4 p.m. CT Sunday to Friday. The long trading hours are typical of futures contracts that are traded electronically. 
  • There is a spot position limit of 1,000 contracts. Futures contracts always have limits on the number of contracts one person or entity owns. This prevents someone from being able to "corner the market."
  • Bitcoin futures will have a price limit of 20% above or below the prior settlement price. 

To trade such futures at TD Ameritrade, for example, CNBC reports that, “In order to be eligible to trade the futures, clients must have a minimum balance of $25,000, according to the brokerage. The margin requirement will also be 1½ times what the CBOE requires.”

Also, according to Coin Telegraph:

A Bitcoin future will work on exactly the same principles as futures on traditional financial assets. By anticipating whether the price of Bitcoin will go up or down, speculators will either go long or short on a Bitcoin futures contract. For example, if an individual owns one Bitcoin priced at $18,000 (hypothetically) and foresees that the price will drop in the future, to protect themselves, they can sell a Bitcoin futures contract at the current price, which is $18,000.  Close to the settlement date the price of Bitcoin, along with the price of the Bitcoin futures contract, would have dropped. The investor now decides to buy back the Bitcoin futures.  If the contract trades for $16,000 close to the future settlement date, the investor has made $2,000 and protected their investment by selling high and buying low. 

In short, it’s a gamble just like anything else in the markets.

But it'll be one the most exciting rides we're sure to see.

 


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