Bitcoing trading is now alive and kicking on futures markets

The View from LaSalle Street #3

Ok, now HERE’s what we’ve been waiting for. Futures in bitcoin – the first of the derivatives of Crypto Currencies. Last Sunday night the first of these opened on the CFE as a CBOE futures contract. The XBT symbol now flies as a contract: Bitcoin Futures have arrived. So, what has this wrought for you trading addicts and casual investors? Sunday night (US time) Dec 17, will see the debut of the big sister CME contract, surely to be the larger and deeper contract of the two. However, for now let’s recap week 1 of XBT trading on the first and smaller of these two seminal contracts.

To begin with, you might have thought you could access your normally tremendous leverage, now that Bitcoin has been downsized. Well, not so much as it turns out. Here’s a few hard facts.

Typically, we traders of both spot or futures are looking for something along the lines of 5:1 minimum – and more like 10 or 20:1 or greater, depending on your account size, country of origin and/or safety of funds requirements. Anywhere between 5 and 20% margin is typical – and if you’re an FX shooter, you know you’re looking for non-US access to as low as a 0.5% margin ((200:1 leverage (or greater!) – THAT’s one way to throw your cash away OR shoot the positional moon in the most efficient possible way)).

Again, though – and you know who you are – casual trader/investors are looking for the leverage.

For you clever BTC futures crowd – hold your horses. Legitimizing (via regulated exchanges) a marketplace with no real underlying “basis”, and whose totally uncorrelated, basically made-up commodity it is built upon, is going to be expensive. The CFE’s contract is ONE bitcoin per. You’re looking at an underlying worth something (in dollars) between $15-$20K each. Here’s the issue: a typical single retracement of between 5% – 15% is simply the daily business in Bitcoin. Talk about volatility. Leverage – Fuhgeddaboudit!

The Margin Reality: Currently, your BEST deal is at Interactive Brokers at 50%. Tradestation crosses the line at between 64 – 70%. Those are the two most well-funded brokers of the four currently offering the CFE futures contract, but remember, those rates are the basic, LONG-ONLY day trading rate. Overnight holdings will cost you between 100% to 150% and higher, just to own, or be long, a cash-settled contract mimicking BTC ownership.

How Much? Minimum account balances run from: between $25K to $50K for long-only existing customers, to an amazing range of as much as $200K simply to walk into the BTC futures arena and consider short-selling a single contract. In other words, the safety of the brokerage is naturally their prime concern – but they are going to cater to their Whales and allow them to utilize their considerable resources to play the short side of this amazing BTC run for the first time, as we’ve said before, within a “legit” marketplace. However, that particular privilege is going to be expensive, friends. Just like its “underlying” infrastructure.

So – what has happened? For the first few days of trading, NO shorting was allowed at all, but on Wednesday the first Interactive Brokers’ whales were granted the power to bet against the advance. The market had its first dip as a result, but quickly recovered to make the normal daily new high we’ve come to expect.

Daily volumes on the CFE XBT contract are relatively low, but consistent, at between 1500 – 2000 lots traded in the front month. The surge in ever-higher prices will be taking its toll on average traders, but we urge you to stand tall and let the dust settle. Let’s see where the CME contract takes bitcoin in general on Futures Week #2, and see just how vulnerable the downside can become …. once it’s more readily accessible. I know I’m anxious.

We’ll keep you apprised right here. Stay tuned for more.

Bill Hoerter

Trader, educator & author
William “ChicagoBill” Hoerter has worked in the financial services (Spot FX, Futures and Options) for 35 years, proving that old men may still be semi-lucid and analytical. In working on trading desks, he used to be the enemy but now helps those of us who love to trade understand the mindset of the Institutions and their counter-programming of the system against the average trader.
His new View from LaSalle Street is an attempt at helping to clear those misdirections.
Bill Hoerter

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