BTC Futures: What You Need to Know
6 min readTable of Contents
BTC futures enable you to know about BTC trading without owning the underlying cryptocurrency. With BTC futures, you can speculate on the future price of the cryptocurrency without actually holding it. There are monthly contract offers by the Chicago Merc for cash. As an investor, you take cash rather than BTC when you settle the contract.
The first BTC futures contract was launched on December 10th, 2017. The Cboe Options Exchange offered it and continued offering new contracts till March 2019. Places like the Intercontinental Exchange and Bakkt trade BTC futures.
What you need to know about BTC future trading in a nutshell:
- BTC future does not involve actual BTC cryptocurrency.
- You are not buying and selling BTC. Instead, you are speculating on the price of BTC.
- You do not need a wallet or a cryptocurrency platform to trade BTC futures contracts.
Why BTC futures?
There are some reasons why BTC futures might gain your interest:
Security and trust
There is a level of security attached to BTC futures that give investors the boldness to trade them. BTC futures are traded on an exchange regulated by the Commodity Futures Trading Commission (CFTC). Aside from regulating the trade around commodity futures, this independent federal agency promotes efficiency in the market.
It also protects investors from manipulations and fraudulent activities and abusive trade. In other words, it protects the interest of investors. The CFTC was established in 1974 by the Commodity Futures Trading Commission Act.
Giving a platform like this that protects the interest of traders and investors, large institutional investors can now participate in the trade without bothering about their safety. The level of risk is highly reduced, which has consequently increased the level of trust people repose in the system.
No wallet and exchange needed
BTC futures are cash-settled. Therefore, you do not need a BTC wallet before you can be a part of the business. There is no BTC exchange in the transaction. The advantage of this system is that you do not own the underlying cryptocurrency, which means you are not at risk of holding a currency with high market volatility that may yield some losses in cases of unfavorable price changes and market sentiments. Also, it excludes you from the cost of holding BTC.
Limited risk exposure
When trading BTC futures, the risks you are exposed to are limited with price limits and position limits. Position limit sets your ownership at certain boundaries. The aim is to avoid a situation where an investor manipulates the price and moves the market for their gains at the expense of other traders and investors.
Where can you trade BTC futures?
The markets for BTC futures were initially some cryptocurrency exchanges. However, there was no regulation on cryptocurrencies. The risk attached to these platforms made them not suitable for traders who are taking the ventures seriously.
CME
With the entrance of Cboe and CME into the scene, the trading of BTC futures assumed a remarkable improvement. While Cboe has discontinued the trade, CME has made remarkable growth. There are the Micro BTC futures, for instance.
ErisX
ErisX is another platform where you can trade BTC futures. It offers cash-settled BTC futures trading and uses upper and lower bounds to regulate the system. The market is based in Chicago.
Bakkt
Another venue for trading BTC futures is Bakkt. Bakkt was launched in 2019 by Intercontinental Exchange (ICE). It promises an “integrated platform that enables consumers and institutions to buy, sell, store, and spend digital assets on a seamless global network.” Futures trading is one of its first areas of consideration.
OKEx and Binance
Other exchanges include OKEx and Binance, which are also excellent platforms for trading BTC futures. Binance is one of the exchanges reputed for its significant number of open interest contracts.
Getting a broker
Getting a futures broker can be a great deal if you want to perform well in the market. There are several experienced futures brokers you can leverage to make the best out of your trading. Here are some of the best you can choose from:
TD Ameritrade
TD Ameritrade offers BTC futures trading services through its subsidiary, ThinkorSwim. The platform is self-regulated and is NFA-registered. The platform does not specify a minimum amount for opening an account. However, it does require that you have up to $2,000 to receive margin privileges. The platform is suitable for beginners as it offers materials to educate you. It makes catching up easier for beginners. It also makes provision for bonuses for new traders.
FOREX.com
FOREX.com executed futures trade indirectly through subsidiary FuturesOnline and is NFA-registered. You will have to open an account with $2,500 and have enough deposit to cover margin requirements. To trade BTC futures on this platform, you have to have a minimum of $500 in your account.
The platform operates a rule that requires you to pay $15 per month if you let your account goes dormant for three months. This platform has a fantastic offer that puts the user first in its priority. It offers a demo account with a deposit of $50,000 virtual dollars to enable first-timers to try the platform, examine their strength, and try their strategies for free. The platform has other exciting offers.
Interactive Brokers
Interactive Brokers offer their services for several areas, including Forex, fixed income, and BTC futures. The margin rates on this platform are one of the lowest you will find in the market. However, it may be more expensive compared to other platforms out there. They have an impressive commission and work policy.
Tips for trading BTC Futures
Trading BTC futures can be a successful venture depending on how prepared you are. If you are well prepared and have plans in place on how to trade BTC futures, you will find it more manageable. Here are some tips to improve your performance and experience while trading BTC futures.
Make a trading plan
Develop a plan to follow as you trade BTC futures. While drawing up a plan, ensure that you take into cognizance the market you will be trading in. There are market behaviors that you have to consider. Any market behavior that will affect your trade needs to be considered. You do not want to perform as a novice in the trade.
Have a clear objective
There must be objectives to your trading. There must be goals you intend to meet. You have to work to meet them. You might have planned to have a level of profit. While some factors may be beyond your control, you can wield some level of control in the trade to make events turn out in your favor.
Know the amount of risk you can take
Every trade involves some risks. Dedicating your time and fund to trading is a huge step that ought to yield the desired dividends. If anything happens and the market is not in your favor or your speculations are not correct as you think, then you should be able to bear the outcome. Consider the risks involve in your trade and know if you can bear them if anything does occur.
Prepare to do your homework.
You will be using some technical and fundamental analysis indicators to guide you in your trade. From this analysis, you will receive signals to buy and sell digital currency. You also have to be conclusive on the orders you intend to use. You will need a plan on how to keep abreast of market trends and movements.
Another area you have to consider is that of money management. The market is volatile, and you cannot be absolute of the movement of prices. Position sizing is an essence. It would be best if you took note of these areas before venturing into BTC futures trading.
While taking note of these trading strategies and making adequate preparation along these lines, you might need some help. If you have some challenges coming up with a plan of your own or are not so sure in some areas, you can use a plan from experts and other successful investors and traders.
Conclusion
Trading BTC futures is not difficult if you have access to the necessary information. You will need to trade on an exchange. A suitable exchange will facilitate price discovery and transparency. With a quick registration and a provision of your personal data, you are good to go.
