What are the benefits of trading Bitcoin futures instead of Bitcoin?
Eugene 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 a 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.
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Hedge Bitcoin exposure or harness its performance with futures and options on futures developed by the leading and largest derivatives marketplace.
Key benefits
- Easily trade on your market view
- Efficient price discovery in transparent futures markets
- Save on potential margin offsets between Bitcoin futures and options on futures
- Expand your choices for managing cryptocurrency risk with Bitcoin futures and options on futures
- Based on the regulated CME CF Bitcoin Reference Rate (BRR)
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 settled2
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.
Traders 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.