Bitcoin micro-contracts are now live on TradeStation
Bitcoin futures are 50 times more accessible to TradeStation Securities clients this week, thanks to CME’s new Micro futures.
CME, the world’s largest derivatives exchange, launched Micro Bitcoin futures last night. The new products will only control 1/10 of a Bitcoin – compared to five coins for existing Bitcoin futures. Traders will be able to take positions with lower margin requirements.
Bitcoin has already tripled this year, fueled by growing acceptance by mainstream institutions. He also took advantage of the scarcity of value at a time of rising prices and low interest rates. This has helped push Bitcoin’s capitalization above $ 1,000 billion, in the same elite club as Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL) and Amazon.com (AMZN).
The rising value of Bitcoin has raised the margin requirement on CME’s existing futures contracts beyond $ 100,000, making them accessible to a smaller community of traders. The new Micro contracts will lower the bar and make it easier for ordinary investors to enter and exit the world’s largest cryptocurrency.
What are Bitcoin Futures?
Futures contracts are derivatives that track an underlying asset like crude oil, gold, or Bitcoin. Investors must have an initial amount of cash as a “margin requirement” to take a position. They can be “long” or buy if they expect prices to rise. They can go “short” or sell if they anticipate a decline.
Bitcoin futures are settled in cash. This means that investors holding positions at expiration (the last Friday of each month) receive a credit or debit depending on the value of their position. Traders wishing to stay long or short can roll over their contracts to a future month before expiration.
CME’s new Micro Bitcoin futures follow the launch of other Micro contracts in May 2019. These contracts track major stock market indices like the S&P 500, Nasdaq-100, Dow Jones Industrial Average and Russell 2000.
New Micro Bitcoin futures will have the symbol root “MBT”, while standard Bitcoin futures will use “BTC”. Both are followed by the expiration month and year code.
Why trade futures?
There are several reasons why traders use futures contracts.
One is predictable pricing. The markets use a bid / ask spread. You pay the “ask” (which is higher) when you buy and receive the “offer” (which is lower) when you sell. Market makers stay in business by keeping the difference.
Futures always have the same bid / ask spreads, as specified by CME. Bitcoin futures have a bid / ask spread of $ 25 ($ 5 per coin over 5 coins). New Micro Bitcoin futures have a bid / ask spread of $ 0.50 ($ 5 per coin over 0.10 coin). Bid / ask spreads may be less predictable or less favorable on cryptocurrency exchanges using the spot market.
Futures contracts can have potential tax benefits under the so-called 60/40 rule. These do not apply to short-term trades in stocks, options or the crypto spot market.
Futures contracts trade from 6 p.m. ET on Sunday until 5 p.m. Friday afternoon, with breaks from 5 p.m. to 6 p.m. each day.
Bitcoin futures make it easier to take short positions or take positions when prices fall. It is often difficult in the spot market.
Finally, Micro Bitcoin futures could help investors manage risk. They can control as little as 1/10 of the value of the concept of Bitcoin per contract. This can allow them to increase and decrease their positions and also protect against declines in the spot market. They can even be used in so-called “cash and carry” transactions.
In conclusion, cryptocurrencies continue to evolve and gain acceptance. CME’s new Micro Futures make it easier to trade around movements in the largest digital currency. Hope this article helps you understand some of the key points.