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How to trade Bitcoin Futures and How Bitcoin futures trading works?

The financial world and the “Concept of Money” have been greatly revolutionized due to the emergence of Bitcoin and other digital cryptocurrencies. On the Chicago Board Options Exchange (CBOE), the Bitcoin futures has been available since December 10, 2017. The highest price of Bitcoin that was $19,783.06 was hit on 17 December 2017 and on the same day, the Chicago Mercantile Exchange (CME) launched its bitcoin futures contract.

The CBOE finally announced that it would not list any more bitcoin futures contracts on 18 March 2019 and the main reason of phasing out was due to higher volume on the CME, which consistently beat out the volume on the CBOE’s Bitcoin contract. Moreover, they assessed on how to proceed with cryptocurrency products. On December 18, 2017, the CME self-certified its bitcoin futures contract with the Commodity Trading Futures Commission (CFTC).

Bakkt, the bitcoin future contract completed it’s day one of trading and witness trading of 71 monthly futures contract and 1 daily future through its platform which approximately $711K in notional trading value.

Things to Know Before Trading in Bitcoin Futures:

  • No change of Bitcoin actually changes in hands, it’s a digital cryptocurrency.
  • Futures contracts either settle financially on the delivery date or are offset by traders reversing out of their positions as the delivery date approaches. Therefore, no cryptocurrency trading platform or wallet is needed for it.
  • On the delivery date, if the buyer or seller of a bitcoin futures contract holds the position and shows a profit, then the difference between the purchase price and the settlement price is paid out to the holder of the futures contract.
  • According to the CME bitcoin futures contract (BTC) specifications, 5 Bitcoin’s are defined by the CME Crypto Facilities Ltd. (CF) Bitcoin Reference Rate (BRR). $25 per contract and $5 for calendar spreads is the minimum fluctuation for a futures contract.
  • The CME, the CME Globex, and the CME ClearPort trading platforms have trading times from 5 p.m. until 4 p.m.CST Sunday through Friday.  Clear opening and closing quote for the contracts is taken in an inactive hour of between 4 p.m. and 5 p.m. Whereas Bitcoin itself trades for 24 hours.
  • March quarterly cycle, consisting of March, June, September, and December excluding the nearest 2 months the listing cycle for Bitcoin’s futures contract.
  • Months in which a futures trade can be made and which is not a part of the quarterly cycle is known as Serial months. Last Friday of the contract month is taken as the last day of trading.

How to Trade Bitcoin Futures

To start trading futures, an account should be opened with a registered futures broker so that the account can be maintained and t trades are guaranteed. A futures commission merchants (FCMs) or introducing brokers (IBs) are the futures brokers.

Learning about futures trade is extremely necessary. The CME’s maintenance margin requirement for bitcoin futures is 37% of the price of the futures contract and initial margin for a hedger is 100% of the maintenance margin. 110% of the maintenance margin is for speculators. Initially, there is no option to exchange for new traders.

A trading plan should be developed and implemented on the basis of careful analysis of the market you plan to trade-in. Objectives should be clear and the number of risks should be calculated. Moreover, Money management and position sizing should also be kept in mind along with technical and fundamental analysis.

Lastly and most importantly, an experienced and professional firm should be the futures broker in order to get a long term success. Finally, the trading plan should be tested through the demo to understand the faults if there are any. Initially, small trades should be made and then eventually moving to the bigger ones.

After all the hustle, go live and start trading bitcoin futures in a live account. Enough trading capital should be available in order to meet the margin requirements.

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About Shreya Kapoor

20 y/o budding journalist, with a tinge of good vocabulary.

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