CME Bitcoin futures are now available for trading. Here’s how they work:
Bitcoin futures are contracts that allow investors to bet on the future price of Bitcoin. The CME Group, one of the world’s largest derivatives exchanges, offers Bitcoin futures trading under the ticker “BTC.”
Bitcoin futures are settled in cash, meaning that no actual bitcoins are exchanged hands when the contract expires. Instead, the investor either receives or pays out cash based on the difference between the futures contract price and the actual Bitcoin price at expiration.
Bitcoin futures contracts are traded on margin, meaning that investors only need to put down a small percentage of the contract value to open a position. This allows for leveraged trading, which can lead to greater profits (or losses) than if the investor had bought or sold actual bitcoins.
The CME offers two types of Bitcoin futures contracts: monthly and weekly. Both types settle in cash and trade on margin.
The monthly contract expires on the last Friday of every month, while the weekly contract expires every Friday. The CME currently offers four different expiration dates for monthly contracts: January, February, March, and April.
For weekly contracts, there are 52 possibilities: one for each Friday of the year.
Investors can choose to trade either type of contract on either the CME Globex electronic trading platform or through open outcry at the CME Group’s designated trading floor in Chicago.
To trade Bitcoin futures, you must have an account with a broker that offers CME Globex access. Not all brokers offer this access, so be sure to check before opening an account.
Once you have an account set up, you’ll need to fund it with enough money to cover any potential losses you might incur on your trades.
When placing a trade, you’ll need to specify both the type of contract you’re trading and your desired expiration date. You’ll also need to set a price limit at which you’re willing to buy or sell the contract.
This is known as your “limit order.”.
Once your order is placed, it will remain open until it is either filled by another trader or expires un-filled. If your order is filled, you will be responsible for paying or receiving cash based on the difference between your limit order price and the settlement price of the contract at expiration.
If your order expires un-filled, you will not owe anything.
The CME charges a fee for each transaction, regardless of whether it results in a trade being executed. The fee is $1 per side per contract ($2 round-turn). So if you buy one bitcoin futures contract and sell it before expiration, you will owe $2 in fees.
If you hold the position until expiration and it is profitable, you will still owe $2 in fees. Only if your position is unprofitable at expiration will you not owe any fees.