How to trade Bitcoin

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Bitcoin Futures & Perpetual Contracts Guide

Bitcoin Contracts Listed on Delta Exchange

Symbol Description Price Max Leverage Settlement Currency Action
BTC Index Details
BTCUSD Bitcoin Perpetual Swap 100x BTC See Market
BTCUSD_26Jun Bitcoin June Futures 100x BTC See Market
BTCUSDT Bitcoin Perpetual Swap 100x USDT See Market
MV-BTC-D-100420 Bitcoin Perpetual Swap 10x USDT See Market
MV-BTC-D-110420 Bitcoin Perpetual Swap 10x USDT See Market

Complete details of the futures and perpetual contracts on XBT that are listed on Delta Exchange are available below.

About Bitcoin

Bitcoin (BTC or XBT) is the most prominent cryptocurrency in the world. It is a decentralized digital currency that functions without a central bank or single administrator. Peer-to-peer exchange of bitcoin can happen without the need for intermediaries.

Bitcoin is also the largest cryptocurrency by market capitalisation as well as trading volumes. You can margin trade Bitcoin on Delta Exchange using our derivative (i.e. futures and perpetual) contracts. This means that you can go long or short XBT with leverage.

Bitcoin Perpetual

Perpetual contracts on BTC are intended to provide returns of the underlying spot market in Bitcoin with the added advantage of leverage. Perpetual contracts do not have an expiry date. You can learn more about perpetual contracts here.

Quotation Details

BTC Perpetual contracts are quoted in USD. All margin, Profit/ loss and settlement calculations are denominated in BTC.

Margin and Leverage

BTC Perpetual contracts are margined in BTC. This means you need to have BTC to trade these contracts. The maximum allowed leverage for BTC Perpetual contracts is 100x.

Underlying Index

The underlying index for BTC Perpetual contracts is .DEXBTUSD. It is comprised of equal weighted average of BTC/USD price from bitstamp, coinbase and kraken.

Funding

Funding is a series of continuous payments that are exchanged between longs and shorts in a perpetual contract to keep the price of the contract tethered to the underlying index.

At any given time, funding rate is equal to the difference of the mark price and the underlying index price. Funding is considered to be an 8-hourly interest rate and is computed and exchange every minute. When funding rate is positive, longs pay shorts. When funding rate is negative, shorts pay longs.

Settlement

This contract is perpetual and does not settle.

  • Taker fees = 0.075%
  • Maker fees = -0.025%

Bitcoin Futures

Bitcoin futures are derivative contracts defined on BTC spot markets and have a have a fixed maturity date. The price of futures contract converges to the underlying spot market at the time of expiry. You can learn more about futures here.

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Quotation Details

BTC Futures contracts are quoted in USD. All margin, Profit/ loss and settlement calculations are denominated in BTC.

Margin and Leverage

BTC Futures are margined in BTC. This means traders need to have BTC to trade these contracts. The maximum allowed leverage for BTC Futures contracts is 100x.

Underlying Index

The underlying index for BTC Futures contracts is .DEXBTUSD. It is comprised of equal weighted average of BTC/USD price from bitstamp, coinbase and kraken.

Settlement

The BTC Futures contracts are settled on the 30-minute-TWAP of the underlying index. To ensure that at the time of settlement there are no under-margined positions, the transition from using underlying index to 30-min-TWAP of underlying index is done gradually.

When the settlement time of a contract is one hour away, we switch to a weighted average of underlying index and the 30-min-TWAP of the underlying index in mark price computation. Over the next 30 minutes, the weights of underlying index and its TWAP go from 100%/ 0% to 0%/ 100%. This means the mark price is computed using the 30-minute-TWAP of the underlying index in the last half hour leading into contract settlement.

  • Taker fees = 0.075%
  • Maker fees = 0.025%

Bitcoin Perpetual

Perpetual contracts on BTC are intended to provide returns of the underlying spot market in Bitcoin with the added advantage of leverage. Perpetual contracts do not have an expiry date. You can learn more about perpetual contracts here.

Quotation Details

BTC Perpetual contracts are quoted in USDT. All margin, Profit/ loss and settlement calculations are denominated in USDT.

Margin and Leverage

BTC Perpetual contracts are margined in USDT. This means you need to have USDT to trade these contracts. The maximum allowed leverage for BTC Perpetual contracts is 100x.

Underlying Index

The underlying index for BTC Perpetual contracts is .DEXBTUSDT. It is comprised of equal weighted average of BTC/USDT price from binance, gateio and huobi.

Funding

Funding is a series of continuous payments that are exchanged between longs and shorts in a perpetual contract to keep the price of the contract tethered to the underlying index.

At any given time, funding rate is equal to the difference of the mark price and the underlying index price. Funding is considered to be an 8-hourly interest rate and is computed and exchange every minute. When funding rate is positive, longs pay shorts. When funding rate is negative, shorts pay longs.

Settlement

This contract is perpetual and does not settle.

  • Taker fees = 0.05%
  • Maker fees = 0.02%

Trading Bitcoin

Why Should You Trade Bitcoin Futures & Perpetual

You can directly buy or sell Bitcoin. This is called spot trading of Bitcoin. If you buy low and sell high, you will make profit. However, this trade only works when Bitcoin price goes up. Further, leverage trading is not possible in spot trading.

Bitcoin margin trading through derivatives addresses these shortcomings. The bitcoin futures and perpetual contracts enable you to go benefit from both up and down move in Bitcoin. Further, these derivative contracts have built-in leverage, enabling you to trade big with small capital.

How to Start Trading on Delta Exchange

Starting trading on Delta Exchange is a breeze. Here’s how you can make your first BTC trade on Delta Exchange:

    Register: This takes

Delta exchanges offers trading in cryptocurrency futures. These futures offer: (a) up to 100x leverage and (b) ability to go both long or short. Crypto futures not only have the same features as margin trading, but also higher liquidity and lower trading fees.

Delta Exchange is a derivatives exchange. You can trade futures on cryptocurrencies, but not cryptocurrencies directly. The complete list of futures listed on delta is available here.

For any query, feedback, suggestion or business proposals, please write to us at: [email protected]

How to trade bitcoin?

How to trade bitcoin (BTC / USD) in the foreign exchange market? Trading strategies for Bitcoin trading and the nuances of trading on BTC / USD.

Today cryptocurrency market cannot yet be called mature.

  • The basics of regulation by regulatory authorities around the world are still just being launched or in the development process;
  • many also still express doubts about the applicability of Blockchain technology in its current form as a tool for big business;
  • there are regular throws of information of dubious quality, generating excessive volatility;
  • periodic bankruptcies and hacker attacks on cryptocurrency exchanges do not go unnoticed.

All these factors indicate an increased risk of this market.

The main cryptocurrencies for investing and trading

Bitcoin (Bitcoin, BTC) is the locomotive of the cryptocurrency market. The first exchange of Bitcoin for national money occurred in September 2009. At that time, 5050 bitcoins were exchanged for 5,02 US dollars. Today, BTC / USD is the most valuable asset in the cryptocurrency market and continues to set records. Bitcoin has already become a successful investment for many, but at the moment there are many who are just looking at this tool. High volatility, playing on the nerves of those who decided to invest in Bitcoin, allows speculators to earn on short-term movements.

Etherium (Ethereum, ETH) – The second most popular and capitalized instrument of the cryptocurrency market. At the moment, most players see it as an investment rather than a speculative asset. In addition to the two main cryptocurrencies, popular among investors and traders are Bitcoin Cash, Ripple, Bitcoin Gold, Litecoin, Dash, NEO, Monero, IOTA.

As a tool for trading and exchanging digital currencies, major exchanges provide the opportunity to trade cryptocurrency pairs. The most popular are BTC / ETH, DSH / BTC and LTC / BTC. Trading them requires a much more thorough analysis of the news background and possession of information about the dates of events important for the cryptocurrency market.

At the moment, interest in the cryptocurrency market is growing not only among professional investors, but also among the general public.

Trading Bitcoin through a broker

One of the easiest ways to start your acquaintance with cryptocurrencies is to open a trading account with one of the main forex brokers. Recently, due to the growing popularity of crypto assets, more and more brokers are beginning to offer their customers digital currency trading. The conditions of various companies as a whole are not very different from each other.

Brokers most often provide access to cryptocurrency trading in MT4 and MT5 terminals. Take, for example, BTC / USD. The minimum lot on average is 0,1 Bitcoin, the spread is in the region of 0,3-0,4%, as a result of which trading on high time frames looks more logical – from H1 and higher. The size of the leverage varies from 1: 1 to 1: 5, so in order to start trading, you must have a deposit in the amount of 200 to 1 USD. Broker’s commission, as a rule, will be 000-0,2% of the amount of the transaction.

It should also be noted that Forex broker trading It is carried out through the purchase of a CFD (contract for difference), which allows you to earn income both by raising and lowering the price without directly purchasing the asset itself. To ensure maximum security of your funds, it is recommended to open trading accounts with regulated forex brokers who are licensed by reputable financial regulators (ASIC, CySEC, FCA, etc.).

Trading Strategy for Bitcoin

Speaking about Bitcoin trading strategies, it should be remembered that this is the same market product as any other. Therefore, it can be argued that this asset may be subject to the same psychological and fundamental influences as other trading instruments.

Everyone remembers the story of buying pizza for several thousand bitcoins at the start of their circulation. But since then, the value of this cryptocurrency has “skyrocketed” to incredible heights, so the “buy and hold” strategy, perhaps, will not bring fabulous profits.

Nowadays, one can often hear the opinion that there is too little graphic data on the dynamics of bitcoin trading, so you should not rely on the conclusions of technical analysis, but you should spend time studying the news background and the reaction of the “market crowd” to it. No one will dispute this opinion, since the market is really influenced by the publication of various data and events related to the global circulation of cryptocurrencies.

But to say that relying on technical analysis is at least unfair, as a maximum, is short-sighted. The use of technical analysis methods is justified by the fact that trends develop as logically and naturally as in other instruments.

3 technical strategies that work

The figure shows that the price moved in a “slender” price channel, and after strengthening the upward movement, it moved to the upper projection channel, thereby demonstrating one of the laws of development of trend movements.

Projection channel bitcoin mining

The following figure shows the situation with the formation of divergence (discrepancies) between price maximums and corresponding maximums on the indicator-oscillator. Such a signal is a very good omen for a reversal to enter sales.

Bitcoin Divergence Strategy

The following illustration can be another confirmation of the success of a technical analysis. Here we see that with a dominant upward trend after the completion of pullbacks, it is possible to select the fractal boundaries of local resistance (for example, the Parabolic SAR indicator). Working out the breakdown tactics, you can successfully trade using indicators of this kind.

Bitcoin trading with Parabolic SAR

Automated Bitcoin Trading Strategies

The second option for trading BTC / USD, which I would like to highlight separately, is trading using the R Trader multi-market platform. The platform provides access to cryptocurrency pairs BTC / EUR, BTC / USD, LTC / BTC, ETH / BTC and ETH / USD.

The trading conditions for trading BTC / USD are generally even more loyal than on MT4, since the minimum order size is 0,01 lots, while the commission and leverage are the same as in the case of MT4 and MT5.

Accordingly, the size of the minimum deposit in order to start trading bitcoin, depending on the leverage used, will be from 20 to 100 USD.

The main feature by which I distinguish this option as a separate one is the ability to use the built-in free constructor of trading robots and a strategy tester. To create your own trading robot in the strategy designer, you do not need to know programming languages. The algorithm is assembled as a rule constructor. You can create a strategy either from scratch or using ready-made templates.

Short-term bitcoin strategies are gaining new life.

Since the cryptocurrency market is still being formed, many short-term strategies, which are not so relevant for classical markets due to the active use of HFT protocols (high-frequency robotic algorithms), gain a “new life” on it.

Due to the nature of the main movement, strategies for the breakdown of important price levels work for BTC / USD “like in a textbook”. It is likely that such patterns will stop working just as clearly after new players enter the market, but at the moment, many “classic” models are being worked out very well on the cryptocurrency market.

You can also consider the option of trading bitcoin using the following automated strategy – BTCUSD, D1, Buy Strat, Parabolic SAR (0.02; 0.1).

The events of this fall for Bitcoin can be compared with the same significant milestones in its history as reaching a price of $ 100 and the moment when 1 BTC became worth more than an ounce of gold. On September 1, bitcoin came up against the price of $ 5, and by the end of autumn, November 000, it was worth almost 29 USD, while the price between these marks briefly went even below 11 USD. The following is one of the easiest ways to capitalize on such a move.

Example Trading Strategy for Bitcoin

In this case, the buy signal was the technical indicator Parabolic SAR (0,02; 0,1) for the daily chart.

As you can see from the figure, on September 19, when the indicator crossed the price upwards, the first purchase was opened in the region of the $ 4 mark. This transaction was closed when the indicator crossed the price upside down in the $ 000 area. The next transaction was executed similarly to the first (Buy – $ 5, Close – $ 590 and so on.

The strategies described above are given as examples that clearly demonstrate the possibility of using automated trading strategies for trading bitcoin. A trader can easily create his own algorithm, conduct back-tests on a demo account, and only then (if the indicators are successful) launch his robot on a real account.

Today, cryptocurrencies are a global phenomenon that has “put on the ears” of the entire global financial community. This is undoubtedly one of the fastest growing segments in global financial markets. Bitcoin is a promising tool for both investment and trading, the main thing is to correctly approach the valuation of an asset and choose a suitable trading strategy. And which one is up to you to decide.

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Dmitry Gurkovsky

Dmitry Gurkovsky, lead analyst at RoboForex. Having worked for several years in the field of technical and fundamental analysis of financial organizations, I gained experience and skills that helped him to become a trader-analyst and portfolio manager of an investment company.

Bitcoin Trading

What is Bitcoin

Bitcoin is the world’s first digital currency and it is expanding in popularity worldwide. With the MetaTrader 4 and MetaTrader 5 platforms you can trade this rapidly growing currency against the US Dollar 24/7. Many traders prefer to trade Bitcoin derivatives due to this asset’s highly volatile nature, which makes it ideal for CFD trading.

How to Trade Bitcoin CFDs in 4 Easy Steps

  1. Open a trading account with AvaTrade
  2. Fund your account
  3. Fill in your preferred investment amount
  4. BUY (go long) or SELL (go short) Bitcoin

AvaTrade is an industry-leading broker with some of the best trading conditions available, including the lowest crypto spreads on the market.

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Why Trade Bitcoin with AvaTrade

  • Uncompromised Safety – With six regulatory authorities and segregated accounts, your money is protected at all times.
  • Many Cryptos to Choose From – Trade on the wide variety of cryptos available on our trading platforms.
  • No Hidden Fees – We offer zero commissions and no bank fees on transactions!
  • Bitcoin Never Goes to Sleep – AvaTrade is one of the few brokers offer around-the-clock service and support in 14 languages.
  • Generous Leverage – Increase your initial capital with generous leverage and get far more exposure to trade than your account balance. Up to
  • Limit Your Risk – You can preset profit and loss levels by using stop losses or take profit limits when you trade. Determine the maximum amount you are prepared to risk when speculating on the price, or set a price at which you want to take profits. Future orders like Buy Stops and Buy Limits are also available.
  • Trade Cryptos Against Fiat Currencies – Unlike many exchanges out there, who are restricting their clients to trade only Crypto to Crypto, our clients can trade Cryptos against Fiat currencies (USD, EUR, JPY etc.), as well.

Bitcoin’s Rise to Prominence

Around 2008, Satoshi Nakamoto founded the first ever cryptocurrency, Bitcoin. At the time, a paper explaining its mechanics and the ideology behind it, was published through the Cryptography Mailing List.

The first Bitcoin software client was released in 2009, and Nakamoto collaborated with many other developers on the open-source team, never revealing his identity. By 2020, the enigmatic Bitcoin founder had disappeared. His peers then, understood how valuable this cryptocurrency was and worked feverishly to develop it to its maximum potential.

By October 2009, the world’s first Bitcoin exchange was established, and by November of that year 4 million Bitcoins had been ‘mined’. At the time, $1 was the equivalent of 1,309 Bitcoin – a fraction of a penny. Considering how widely Bitcoin fluctuates, that was a real steal: it hit the $10,000 mark within eight years.

And so, the rise of the Bitcoin begun…

Open a trading account with AvaTrade today and start trading Bitcoin easily and securely!

The maximum accumulated position size for Bitcoin is 100 BTCUSD (10 LOTS), details in our Conditions and Charges page.

Bitcoin was the first digital currency to be created. It is also the most respected, capitalised and traded cryptocurrency in the world. Cryptocurrency trading allows for maximum yield when it is volatile, due to its many ups and downs. This is precisely the reason global traders enjoy Bitcoin trading.

The media plays a big part in Bitcoin’s volatility. Whenever a breaking story surfaces, Bitcoin starts to fluctuate and traders have the opportunity to cash in. History has shown that Bitcoin traders and speculators routinely push this digital currency to the forefront of CFD trading.

It is increasingly being used as the preferred payment option for merchants, money transfers and trading purposes. Bitcoin enjoys widespread popularity as a financial trading instrument, despite no association with governments or central banks.

Bitcoins are mined with powerful computer hardware and software. A maximum of 21 million Bitcoin will be available, after which no further bitcoins will be produced. The algorithm which governs the production of Bitcoin limits the quantity that will be produced, and the rate at which they will be produced. It is a finite commodity – there is a fixed amount, and that ensures that greater demand will always prop up the price. In this way, it is similar to other finite commodities such as crude oil, silver, or gold.

Bitcoin in the News

  • November 2020 – WordPress started accepting bitcoins
  • July 2020 – Launching of a joint project in Kenya, linking bitcoin with M-Pesa, a popular East African mobile payments system.
  • September 2020 – TeraExchange, LLC, received approval from the U.S. Commodity Futures Trading Commission to begin listing an over-the-counter swap product based on the price of a bitcoin, marking the first time a U.S. regulatory agency approved a bitcoin financial product.
  • March 2020 – The Cabinet of Japan recognised virtual currencies like bitcoin as having a function similar to real money.
  • August 1, 2020 – First fork in Bitcoin was created: Bitcoin Cash
  • October 24, 2020 – The second fork in Bitcoin was created: Bitcoin Gold
  • December 10, 2020 – Cboe Futures Exchange (CFE) starts offering Bitcoin futures trading
  • December 28, 2020 – Third fork in Bitcoin created: New coin on SegWit2x chain called B2X

Need Help Trading Bitcoin?

AvaTrade offers you the opportunity to Buy (go long) or Sell (go short) on all Bitcoin trades. This service is available to you 24/7. You can use your preferred trading strategies to buy or sell Bitcoin regardless of which way the currency is moving.

We encourage you to learn more about Bitcoin trading by visiting our Trading Conditions & Charges page.

Please note: The cryptocurrencies market’s high volatility offers endless trading opportunities.

How to trade Bitcoin Futures – Ultimate Guide Part1

Have you heard of Bitcoin Futures? You know CME Group’s adding them and this is positive news, but do you really know what derivatives are, how can you trade them, and where can you learn more about futures trading? Here’s your first part of Bitcoin Futures guide to get you started.

Dr. Christina Czeschik, the author of this article, is also publishing a book on cryptocurrencies for beginners that will help you get started nice and easy: Cryptocurrencies for Fun and Profit (with Ratko Stambolija).

Bitcoin Futures

Bitcoin and other cryptocurrencies have evolved from a playful experiment among technical experts to an established and growing branch of the global financial industry. This means that the times in which cryptocurrency traders and investors only concerned themselves with straightforward buying and selling are over. Derivatives are now entering the picture.

What are derivatives?

Think of a derivative as a bet between two parties about the development of an underlying asset. These instruments are derived from the value of the underlying asset, having no value of their own. Hence the name “derivative.”

In traditional financial markets, derivatives are used as speculation objects as well as insurance against losses. 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.

For example, let us assume that the underlying assets are pork bellies:

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 1,000 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 1,200 USD at the time of execution, trader A is still contractually obliged to sell for 1,000 USD.

Options: Call and put, short and long, and leverage

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. Say that Speculator X believes the price of a ton of pork belly will rise to 1,200 USD in 3 months’ time, so buying the futures contract at 1,000 USD is a good deal. He can then sell the contract to bacon producers who want to buy pork bellies at 1,000 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.

However, Speculator Y may think that pork belly prices will drop to 800 USD per ton. For her, having the option of selling pork bellies for 1000 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.

The positions of Speculators X and Y are known as the long and short respectively: You assume a long position towards the underlying asset when you speculate the rising prices of an asset, and a short position when you speculate on falling prices (also known as “going long” and “going short”).

By now you may ask yourself, “If I think that the price of an asset is going to rise, why should I buy a call option and not the asset itself?” The answer is this: Options give you leverage. 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. For example, when pork belly prices rise from 1,000 USD to 1,100 USD (an increase of 10%), call options for 1,000 USD suddenly become much more valuable – their prices may rise from 10.5 USD to 105 USD. Thus, if you have invested all of your capital in pork bellies, you will win 10% – if you have invested in pork belly call options, you will pocket a 1,000% profit.

These numbers are just approximate examples. The exact price of an option depends on the following factors:

  • The current price of the underlying asset.
  • The so-called intrinsic value of the option, which is simply the difference between the current market price of the asset and the predetermined price in the option (1100 USD – 1000 USD = 100 USD in this example).
  • The remaining time until the expiration of the option.
  • The volatility of the underlying asset.

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. In the above example, if the price of pork bellies falls from 1,000 to 900 USD (by 10%), the price of call options may fall from 10.5 USD to almost zero, resulting in a near-total loss of your funds instead of a small loss of just 10%.

What are Bitcoin futures contracts?

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. For example, if today’s Bitcoin price is 8,000 USD per BTC and you expect it to rise to 10,000 USD per BTC in 4 weeks, then entering a contract which allows you to buy Bitcoin at 9,000 USD in 4 weeks is highly attractive.

Thus, Bitcoin futures are an up and coming class in the emerging crypto derivatives market.

Current situation in crypto derivatives

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. Nowadays, there are already a couple of exchanges that offer crypto derivatives trading as a standard feature : BitMEX is the current market leader, according to The Merkle News; others are OKCoin , Crypto Facilities , Coinpit , and Deribit , as well as LedgerX (the first regulated cryptocurrency exchange in the US).

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 1.5-2x std from the mean) most of the OTC platforms do not provide leverage on bitcoin and other cryptos CFDs.

CME Bitcoin Futures

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.

Crypto Facilities and the CME Group have been calculating and publishing the Bitcoin Reference Rate (BRR) since November 2020. Such an official rate is a prerequisite of options trading in the traditional markets. The BRR is calculated based on the rates from the biggest exchanges: Bitstamp, GDAX, itBit, and Kraken. More concretely, it is calculated based on all Bitcoin vs. USD trades on the participating exchanges between 3 and 4 p.m. 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. More details about the calculation of the BRR can be found in the BRR whitepaper .

The CME Group manages the Chicago Mercantile Exchange (CME), the Chicago Board of Trade and the New York Mercantile Exchange and Commodity Exchange. Taken together, they control the largest derivative market in the world.

CME and Crypto Facilities also publish the CME CF Bitcoin Real Time Index (BRTI), which follows the price of Bitcoin in real-time (updated every second, with a precision of 0.01), as opposed to the BRR explained above (determined between 3 and 4 p.m. 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 1,000 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. This is a crucial difference because it enables traders to trade in Bitcoin futures without having a cryptocurrency wallet . Every transaction is done in USD.Thus, it is easy for mainstream traders to take part in this market.

The tick size – the minimum amount by which the value of the futures contract can change – is 5 USD per BTC, therefore 25 USD per CME Bitcoin futures contract. See here for more details about the futures contracts at CME.

How to trade Bitcoin futures

As described above, you can assume one of two positions in regards to trading in futures and other derivatives: Long and short. When you follow a long strategy, you speculate on prices of the underlying asset going up. With a short strategy, you speculate on prices going down.

Short and long

If you are “going long” on Bitcoin, you assume that Bitcoin prices will go up. And if you expect Bitcoin prices to go up, you are interested in buying call options – options that enable you to buy Bitcoin at a predetermined price in the future. For example, if the current Bitcoin price is 5,000 USD and you expect it to rise to 8,000 USD 6 months from now, you would certainly pay good money for a call option that allows you to purchase Bitcoin for 5000 USD in 6 months, when everyone else is buying for 8,000 USD.

In contrast, if you are “going short” on Bitcoin, you assume that Bitcoin prices will fall. Buying put options will enable you to sell Bitcoin at some point in the future at a price that is higher than the future price you expect. In analogy to the example above, if the current Bitcoin price is 5,000 USD and you expect it to fall to 2,000 USD in 6 months, then put options allowing you to sell Bitcoin for 5,000 USD in 5 months (when everyone else is selling for 2000 USD) are very valuable.

In both of these examples, the options (call option in the first example, put option in the second) have an intrinsic value of 3,000 USD.

Going long is fairly straightforward. It is similar to buying the underlying asset itself, with the only difference being that it enables you to have more leverage.

Both call and put options have, as we have learned above, a certain expiration date. For example, my call option (Bitcoin for 5,000 USD) that I am buying on November 24, 2020, may have a running time of 6 months and thus expire on May 24, 2020. I can sell this option at any time between now and May 24, 2020. But what happens if I don’t sell?

Let’s assume that on the expiration date Bitcoin is worth 8,000 USD. Then my option is very valuable because it enables me to purchase Bitcoin significantly cheaper than the current market price. If this happens, the option is “in the money” – it is valuable.

If, however, Bitcoin is worth just 2,000 USD on May 24, 2020, then my call option for 5,000 USD is worthless. Nobody is interested in exercising this option and purchasing Bitcoin for 5,000 USD when the market price is only 2,000 USD. Thus, my option is “out of the money.”

So, one of two things can happen on the expiration date: If the option is “in the money,” I will receive its value in cash because CME Bitcoin futures are cash-settled. If the option is “out of the money,” it vanishes from my account without bringing me any profit.

However, if the price of the underlying asset is going down, your options usually become worthless before the expiration date. For example, if the Bitcoin price is already at 2,000 USD on May 17, then only the most extraordinary optimists (or “bullish” investors) would buy a 5,000 USD option that expires in just a week.

Everything discussed above is true for put options as well, except that their value development goes in the opposite direction. They become more valuable as the underlying asset price is falling.

Margin

A futures contract, as we have mentioned above, is a contract between two parties who agree to make a transaction of an underlying asset at a specified time in the future.

For example, you can enter a Bitcoin futures contract with Mortimer Duke saying that you will sell him 1 BTC on March 30, 2020, for the price of 5,000 USD per BTC. (In the actual CME futures contracts, the limit for one contract is 5 BTC, but we will stick with 1 BTC now for the purposes of easy explanation.) You enter into this contract on an exchange like CME.

Now, what if the Bitcoin price is rising? For example, if 1 BTC is worth 5,500 USD, you don’t want to fulfill this contract any more and sell cheap for 5,000 USD. In order to still make things fair for both participants, the exchange (here CME) will make sure that you can sell for the current market price of 5,500 USD if you so wish, but they will compensate your contract partner for this. How? They will take the difference – 500 USD – out of your so-called margin account and give it to Mortimer. This kind of settlement is not only performed on the fulfilment date of the futures contract, but on every trading day, according to the current price of the asset.

In order to make sure that you actually have money in your margin account to settle the difference with Mortimer every day, you are required to put up an initial margin at the beginning of the contract. A lower sum, the so-called minimum margin or maintenance margin , is also defined by the broker. If the money in your margin account falls from the initial margin to the maintenance margin, it triggers a margin call : The broker requests you to fill up your margin account to at least the initial margin (of course, you may also put up more).

However, if you don’t have the money to fill up the margin account upon margin call, you are in trouble: The broker then has the right to sell your assets (usually at a price that is more unfavourable than if you had waited for a good opportunity yourself). This is why margin calls should be avoided.

The margin required for CME Bitcoin futures trading is not yet determined. CME says , “As of November 1, 2020 the estimate of initial margin that CME Clearing would require is 25-30%, though this is subject to change.” The minimum margin will probably be around half that.

How to trade Bitcoin futures on CME

The trading of Bitcoin futures on CME is expected to start in the middle of December 2020. If you want to join in on the fun, how should you proceed?

Trading directly on CME is not possible unless you are a broker yourself. This means that you have to pay a high fee – between thousands and hundreds of thousands of USD – to join CME. As an individual investor, you need to find a broker who trades on CME . You will then open an account with this broker – a margin account rather than a cash account because in options trading, there is a margin involved, as we have seen above. Because this poses a higher risk for the broker – in case you can’t settle your debts – these deals can only be done in special margin accounts and not cash accounts.

When you display any broker’s profile page on the CME list above, you will see on the right hand side this broker’s specialties (a list of industries and/or financial products). As of this articles publication (Nov. 24, 2020), only one broker has added Bitcoin to his list of specialties: Level Trading Field LLC . However, this does not mean that the other brokers won’t handle Bitcoin futures. We expect that more of them will adopt this specialty as soon as Bitcoin futures are on the market.

Crypto sources: Where to learn more

In this article, we have covered the basics of Bitcoin futures trading. However, this is just a small part of everything you need to know to become a well-rounded, successful crypto trader. Where can you go to learn more? We have evaluated a few sources for you:

“Trading Cryptocurrency” Course

This course by the ChartGuys “covers topics ranging from market psychology to executing a trade”, as the ChartGuys themselves say. This is a paid course ($149) – however, even The Merkle thought that it is worth its money . It covers long term as well as short term investment strategies, and the psychology of investing as well. Click here to visit the course .

“Beginners’ Bible” Book

If you prefer to read about cryptocurrency investing instead of doing a video course, we recommend this book: “ Beginners’ Bible – How you can make money trading and investing in cryptocurrency like Bitcoin, Ethereum and altcoins ”.

The book is geared explicitly towards beginners – it includes a step-by-step tutorial to setting up your wallet and buying, selling and (important!) profiting from cryptocurrencies. If today you don’t know the difference between Bitcoin and Blockchain, tomorrow you may be a fairly sophisticated investor already by reading this book.

“Crypto News” YouTube Channel

Finally, if you’ve understood the basics, but want to keep up to date in the field of cryptocurrency investing, we recommend Crypto News on YouTube . It was founded in early 2020 and has since then helped thousands of viewers investing in a smart way. The channel currently has more than 13.000 subscribers.

Crypto News posts new content almost daily, so check back often.

Conclusion

The CME Group, as one of the most well-known and respectable exchanges in the traditional fiat economy, is introducing Bitcoin futures most likely in the middle of December. They are not the only ones though. The Chicago Board Options Exchange (CBOE), the largest US options exchange, is planning a similar product .

These developments are expected to not only further rally the price of Bitcoin, but also open the doors for more traditional investment opportunities based on cryptocurrencies, such as a Bitcoin exchange-traded fund (ETF) . ETFs are currently very popular investment products for beginning and advanced investors because they charge low fees and usually have low volatility. Because high volatility is one of the factors preventing conventional investors from entering the crypto market, products such as these could offer them the best of both worlds.

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