A Look at Bitcoin Derivatives – Futures, Perpetual Swaps and Options

The key to Bitcoin’s allure as an investment is its price fluctuations. The fluctuations give investors the choice to buy when the price is bearish and sell when the price is bullish. 

But after the 2017 incredible bull run, Bitcoin seems to have adopted a more predictable price action. While the coin experiences volatility, it’s not up to the level where many investors would consider “exciting.”  

For this reason, speculators looking for, well, more exciting trades are flocking to Bitcoin derivatives. Global trading of these products already even surpassed Bitcoin

So what are derivatives exactly? Read on. 

What are Derivatives? 

A derivative is a tradable security whose value is derived from or relies on an underlying asset. Derivatives are not a modern phenomenon. Indeed, they go as far back as medieval times when merchants all over Europe would use them to facilitate trades and take part in periodical fairs. 

Today, derivatives have become an integral part of everyday trading. Generally, they belong to the more sophisticated and high-risk realm of trading. Examples of derivatives include swaps, futures, options, swaps, and warrants. 

With that,

Let’s explore Bitcoin derivatives

#1. Bitcoin Futures

Bitcoin futures are an agreement or contract to sell or buy Bitcoin at a predetermined price at a predetermined date in the future. Bitcoin futures give investors the opportunity to participate in the Bitcoin market without having to purchase the underlying currency. 

By trading in Bitcoin futures, investors get certain benefits as opposed to if they were trading in Bitcoin directly. First, trades take place on an exchange regulated by the Commodities Futures Trading Commission, which would give investors who are risk-averse more confidence to participate. Second, futures are settled in Fiat, which means investors do not need to sign up for or invest in a Bitcoin wallet. 

Of all Bitcoin derivatives, futures were the first to really explode into the market, and they remain the most actively traded today. Before they caught on, BTC futures were trading in lesser-known platforms. It’s only in 2014 when increased demand prompted major exchanges such as CME Group Inc and Cboe Global Markets to start offering the service. Bitcoin futures today lead other Bitcoin derivatives in terms of adoption and market activity. 

#2. Bitcoin Perpetual Futures (Swaps)

The Bitcoin market also supports derivatives known as perpetual futures or swaps, which are a lot like the standard futures discussed above, except they do not have an expiry date, a predetermined date on which they are to be settled. 

Since the contract will never expire, both the parties can hold the position indefinitely, as long as their BTC count holds enough funds to cover them. 

Perpetual futures use a mechanism called funding rate, which is a small fee that keeps the price of a contract near the underlying spot price index to cushion against major deviations. Funding rates usually correlate with market sentiment. When the market is bullish, funding rates will be positive, and when the market is bearish, funding rates will tend to be negative. 

The funding rates are exchanged between the two participants in a contract (long and short parties) – it’s not a fee collected by the exchange. 

Note: Both perpetual features and the funding rate phenomenons were invented by crypto exchange Bitmex. 

#3. Bitcoin Options

Bitcoin options are derivatives that track the Bitcoin market over time. A trader invests in an option by buying the “option” or right (but not obligation) to sell or buy the asset at a set price (known as the strike price) in the future.

Options contracts can either be of two types: call and put. Call options give you the right to purchase underlying assets before or on a specific date. Put options give you the right to sell it. 

Options contracts can also be either European or American. An American option allows you to exercise options rights at any time during the life of a contract (before and on the date of expiration), while the European option can only be executed on the day of expiration.

Owning the rights to an option means that you reserve the right to buy or sell on the expiry date. If you don’t, the contract simply lapses. However, you lose the money you paid for the contract. 

Just like futures, options are settled in cash but bear very little risk compared to futures. With futures, both parties (buyer and seller) have unlimited risk and reward (since the price of Bitcoin can go any direction before the settlement). For options, however, only buyers have an unlimited reward for a limited risk, while sellers have unlimited risk and very limited reward.

Crypto Guides

Bakkt – The Game Changer in the Cryptocurrency World?


In the present state of Cryptocurrencies, there is a lack of mainstream acceptance and institutional investment. But, bringing in the institutional investment money into the cryptocurrencies is a new aim. Currently, the money of institutional investment is floating in stocks, bonds, currencies, and other formal financial instruments. An inclusion of cryptocurrency would drastically increase the total market cap of it. Apart from financial benefits, this institutional investment will also add a layer of legitimacy, which helps in its acceptance in the mainstream.

What Is Bakkt?

Bakkt is an open cryptocurrency platform that provides all cryptocurrency services. It has facilities for trading and warehousing as well. The uniqueness of Bakkt lies in its management and founders. Bakkt is the product of the company that initiated the New York Stock Exchange. And it plans to enter the market with the assistance of big companies such as BCG, Microsoft, and Starbucks.

Where It All Began?

In August 2018, Intercontinental Exchange, the parent company of Bakkt, released a statement, where it said that it intends to create an open and regulated global ecosystem for digital assets with the use of Microsoft’s cloud service Azure. It said that it would start off by including federally regulated markets and auxiliary services. In addition, it would even feature a Bitcoin to a fiat currency converter, which most of the cryptocurrency exchanges do not have to offer.

The first question that pops in one’s mind is if Bakkt is safe or not. As mentioned, Bakkt is the establishment of a company that founded the New York Stock Exchange, it already has few large institutional investors who have poured capital into it, it is built on the Microsoft technology, and its very first major merchant is the café giant Starbucks. These considerations hence clear the unsafe fog out.

The crypto analysts have studied and found some key advantages from this platform, where all of them have a positive outlook towards it. Now let’s discuss a few of them.

Institutional Investment

This was one of the primary reasons for the creation of this platform. Bakkt has this covered as it backed with venture capital firms. If such types of firms still show interest in it, then it would attract larger and larger firms to come on board. And if these firms stick onto it, then even the smaller investment firms would enter as well.

Bakkt Bitcoin Futures

September 2019 was when the Bakkt launched the physical-settlement bitcoin futures products on its platform. As of date, Bakkt has a major derivative offering, which includes daily and monthly contracts.

Now that the futures contracts are publicly available, Bakkt has entered into the mainstream derivatives marketplace, i.e., it has been included in the CME Group, which first launched its bitcoin futures product in late 2017.

Mainstream Acceptance of Bakkt

Bakkt backed by ICE can be treated like a trump card when it comes to security. In owning and managing some of the world’s largest mainstream exchanges, ICE is in such a position where it very well knows how to spread and set the cryptocurrency exchange of the future.

The large entities opening themselves into the crypto space, are giving more credibility to cryptocurrencies are choice to consumers. Hence, this may be the one that eradicates cryptocurrency from its current position to give it a better life, which would be accepted in the mainstream. Cheers.

Forex Videos

How To Trade Bitcoin Futures Price Gaps! 95% Assured Strategy Part 3 of 3

Trading Bitcoin Futures Gaps – part 3/3

The last part of the Bitcoin futures price gap trading is dedicated to the types of gaps and what they represent. Not all gaps are the same, and knowing which one is which will help with using them for trading.


Types of gaps

There are four types of price gaps, and while they might look alike, they are all traded differently. It is essential for traders to differentiate between them.

Breakaway gap

These gaps occur when the price makes a strong and sharp directional move from the consolidation area. This type of gap is particularly powerful when combining it with clear patterns such as trading ranges and patterns (that we covered in previous videos). A breakaway gap that is followed by a significant volume increase is a sign of a strong trend. This gap is somewhat unlikely to be filled, at least in the short term. A low volume move is more likely to see the price returning to the area it was previously in. To sum it up, breakaway gaps are not the best for trading as they are less likely to be filled than some other types of gaps.

Common gap

Also known as area gaps, temporary gaps, and pattern gaps, they are most often seen in sideways moving markets. They are almost always filled, but the problem is that they offer very little information in regards to what price will do after this occurs.

Exhaustion gap

This type of gap is mostly viewed as a signal for trend reversals. They occur around the end of a price pattern, signaling a final attempt to hit new highs or lows. These gaps occur in markets with rapid upswings or downswings, often on a large move up or down. They are usually preceded by a heavy spike in volume. These are the gaps with the biggest likelihood of being filled.

Measuring Gap

Also known as runaway or continuation gaps, they occur in the middle of a price pattern. They are considered a signal that buyers or sellers are flocking and trading in the same direction. Measuring gaps will not occur during consolidation periods. They occur only during rapid price upswings or downswings. These gaps are not normally filled for quite some time as the push in one direction is too strong.

Mistakes when trading Bitcoin price gaps

Common mistake traders make when using gaps to trade Bitcoin is confusing exhaustion gaps with measuring gaps. This can cause a trader to position himself in such a way that they will miss significant gains that occur in the last half of an uptrend. Exhaustion and measuring gaps are quite different as they predict moves in completely opposite directions.

Keeping track of volume can help with finding the clue for distinguishing measuring gaps from exhaustion gaps. A noticeable heavy volume would suggest an exhaustion gap, while the lack of heavy volume would indicate a measuring gap is happening. It is also important to note that the filling of the gap rarely stops as there are no immediate support or resistance areas within it.

Crypto Videos

How To Trade Bitcoin Futures Price Gaps! 95% Assured Strategy Part 2 of 3

Trading Bitcoin Futures Gaps – part 2/3

While the previous part explained what price gaps in the Bitcoin futures market are, this part will show how to trade them and what to expect when doing so.

Why do price gaps fill?

There are a few explanations as to why most gaps fill. If the spike was too optimistic or too pessimistic, it might lead to a correction afterward. Another possible explanation might be that the price action was too sharp and did not form any support or resistance levels, making the correction more likely to occur.

Gaps and Bitcoin price

While there is no hard evidence of Bitcoin’s price being directly affected by the price gaps in the futures market, lots of people seem to believe so. In cases where the CME Bitcoin futures price flash crashes in just a few seconds, many people (analysts included) believe that manipulation is occurring.

Traders and Bitcoin price gaps

When looking at the price gaps in the Bitcoin futures market, one might conclude that a large majority of them get filled extremely fast. Some traders are even incorporating the futures chart as a necessary tool for their technical analysis. However, doing this could be quite dangerous if not executed properly.
When trading the traditional markets, using gaps as indicators is a lot more transparent. As an example, some traders use strategies such as buying stocks in the after-hours if the company releases an earnings report showing positive results. However, since Bitcoin never stops trading on other exchanges, using this strategy could be trickier than it initially seems.
That’s why we need to know a few rules to trade Bitcoin based on the futures market gaps.

When a significant gap appears, it usually removes the immediate support or resistance levels, meaning that the gap is more likely to get filled. Make sure to trade in the overall direction of the market on a higher timeframe.
The price usually retraces to the original resistance level. The gap will be filled, while the prior resistance will be turned support.
The risk management while trading should be symmetrical (1:1), as almost all gaps eventually close.


Trading Bitcoin while using the CME Bitcoin futures chart gaps as indicators of price direction may be a lucrative strategy. When paired up with good key level analysis, this way of trading might be one of the safer ones. However, one must set its goals (to the upside and downside) correctly to prevent any unnecessary losses.
Check out part 3 of Bitcoin gap trading to learn more about the types of gaps and what they represent.

Crypto Daily Topic

What Does the Introduction of Bitcoin ETFs mean to Crypto Investors? 

Over the last few years, key stakeholders in the cryptocurrency industry have been advocating for the approval of Bitcoin exchange-traded funds (ETFs). Unfortunately, the Security Exchange Commission (SEC) has rejected the ETFs on the basis of the market’s volatility. 

But what exactly are Bitcoin ETFs, and how are they different from actively trading the digital currency on crypto exchanges? 

To answer this question, we need to take a step back and examine how ETFs work in their most basic form. 

What is a Bitcoin ETF? 

Essentially, an exchange-traded fund (ETF) is an investment vehicle that tracks the performance of assets such as securities, bonds, and commodities like gold and oil. The fund can easily be traded on an exchange just like stocks, hence the name. ETFs allow investors to diversify their portfolio without actually owning the underlying assets. 

In the case of Bitcoin ETF, the backing asset will likely be bitcoin futures or actual bitcoins stored in wallets. For investors, holding shares in a bitcoin ETF would mean that you don’t have to worry about the complexity of actively trading Bitcoins in the market, or about safety. This is because the investors’ money is tied to the price of Bitcoin and not the digital currency itself. 

Advantages of Bitcoin ETFs 

Bitcoin ETFs come with some advantages which are crucial to the maturation of the entire cryptocurrency market. 

Big Money Interest

Bitcoin ETFs are a gateway to roping in mainstream investors into the cryptocurrency market. The main incentive here is that the ETF is regulated by brokers, and this increases investor confidence. That said, it will be easier for institutional investors to put their money into the fund in order to diversify their portfolios. Additionally, Bitcoin ETFs make it possible for the less than tech-savvy investors to invest in Bitcoin, thus helping them avoid risky token sales or blockchain-based projects. 

Increased Bitcoin Value

Usually, an ETF dealing with a commodity such as gold keeps a large amount of the commodity in reserve. Likewise, a Bitcoin ETF will be backed by large reserves of the digital coin stored in wallets. As the fund purchases more bitcoin to keep in reserve, the market value of the digital asset will increase.

More so, the fund will redirect the investor money into the Bitcoin global market. In turn, Bitcoin’s price will become more stable, making it more valuable. 

Added Legitimacy

Bitcoin itself isn’t completely illegal but still faces restrictions from various governments. However, if Bitcoin ETFs were to be approved on a major exchange under the regulation of a body such as the SEC, it would become more accepted by the general public. This would also prompt investment managers to include the fund in tax-sheltered retirement plans such as 401ks and mutual funds.  

Cons of Bitcoin ETFs

While there are advantages that come with the addition of Bitcoin ETFs in the market, there are a couple of valid reasons why the funds may be a bad idea. 

First, the funds might take away the decentralized nature of bitcoin holdings. This opinion is tied to the fact that investors don’t own the private keys of the underlying asset. The investors own shares in Bitcoin, which is not the same as owning the asset itself. As such, the fund custodians will have absolute authority on making crucial decisions such as which chain to support in the event of a fork, and even whether or not to issue forked coins to investors. 

Moreover, the entry of big money investors means that there is a high possibility of Bitcoin price manipulation through shorting. These investors may sway even the entire crypto-market to their advantage at the expense of other small-scale investors. It can get even worse considering that Bitcoin ETFs are open to any investors, including those that don’t understand or appreciate blockchain technology. The entry of such investors in the market may jeopardize the intrinsic value of the technology since they are largely more concerned with making profits than the growth and development of blockchain. 

Investing in Bitcoin ETFs

Clearly, the advantages of Bitcoin ETF outweighs its cons.  Although the fund is yet to be approved on U.S. exchanges, there are several functional Blockchain ETFs in European exchanges. Unlike Bitcoin ETFs, blockchain ETFs do not follow bitcoin prices but instead track the performance of companies linked to the blockchain space. Be aware, though, that the ETFs come with tax implications as per the provisions of the Financial Account Tax Compliance Act (FATCA).

Right now, the only Bitcoin financial product available to U.S. investors is  Bitcoin ETN. The two products are similar in that they relieve investors of the burden of owning the asset. However, ETNs are regarded as debt notes rather than a pool of assets. They are often issued by banks and are structured as bonds in the sense that they are unsecured. The only downside of ETNs is that if the underlying issuer goes bankrupt, investors are likely to lose their money. Perhaps this explains why Bitcoin ETNs haven’t gained much traction. 


Bitcoin ETFs offer a new way of investing in the cryptocurrency market. As an investment vehicle, ETFs serve as a tool for driving Bitcoin adoption as global investors bet on the price of the underlying asset. But it is important to note that the real potential of ETFs is the sheer speculation from the crypto community. Unfortunately, the few ETFs that are in the market can’t be used to ascertain these speculations since they are exclusively offered to specific investors.

Even if ETFs live up to the hype, they still have a long way to go considering that Bitcoin futures still lag behind in terms of trading volume. For now, crypto investors can find consolation in the fact that European exchanges, as well as over-the-counter Bitcoin financial products, are paving the way for the inception of Bitcoin-based ETFs. 

Crypto Daily Topic

Ether Futures: The Definitive Guide

Speaking at an interview late last year, the new chairman of the U.S Commodity Futures Trading Commission (CFTC), Heath Tarbert, said that Ethereum Futures are likely to be launched sometime this year. 

Such a bold declaration, coming from the regulator of one of the largest derivatives markets in the world, will undoubtedly attract institutional investors who are looking to hedge losses in their fiat settled portfolios. 

But before we can examine the impact of ether futures on the crypto market, there is a good chance that the futures contract will not be launched as soon as expected. If at all it will even be possible to launch them in the first place. 

The Road to Launching Ether futures Contract

While CFCT is planning on launching Ethereum futures, the contracts have already been launched, and investors started to trade them on exchanges based outside the U.S. By extrapolating the market behavior on these exchanges, it’s safe to say that ether futures won’t trade in high volumes as anticipated.

On BitMEX, Huobi, and Deribit exchanges, where investors are actively trading ether futures, the contracts’ trading volume is less than 10% compared to that of bitcoin futures. It could be because Bitcoin futures were the first crypto derivatives to be launched, and have actually been in existence for quite some time now. As such, many investors view bitcoin futures as the crypto-asset of choice. Also, the difference in trading volume may be due to the fact that Ethereum is still maturing, and maybe it will eventually catch-up at its own time. 

Even without considering the trading volume, the launch of ether futures may not come to fruition due to the coin’s upcoming change in algorithm. The proposed change in algorithm will see Ethereum move from proof-of-work to proof-of-stake algorithm, making the coin more of a security than a commodity. 

Unlike proof-of-work where holders receive coin rewards randomly, once Ether moves to proof-of-stake, the coin holders will receive annualized rewards. As such, since the returns will be more regular and predictable, the entire Ethereum network will fall under the jurisdiction of the U.S. Security Exchange Commission (SEC). As it is widely known, SEC hasn’t warmed up to the whole idea of crypto-assets. This will likely delay the launch of Ether futures for quite a long time.

More so, the change in algorithm, which will be executed via hard forking, makes investing in Ethereum network riskier now than it would be if hard forking was executed when the network was in its infancy stage.  

Effects on The Crypto-market

Assuming that all goes well and ether futures are launched, the most immediate impact will be on Ethereum prices. 

Going back in time, the launch of Bitcoin futures coincided with the coin’s all-time high prices in the year 2017. Bitcoin pessimists were, therefore, able to enter the market via the futures, leading to a fall of  Bitcoin demand in the spot market. The lower the demand, the lower the prices.

The change in Bitcoin’s price dynamics, prompted the pessimists, as well as the initial coin holders, to short-sell in an effort to make returns off the falling prices, making the prices to decline further. 

History may repeat itself in Ethereum’s case, especially considering that the crypto-market is driven mainly by speculative investors. Yet, the Ethereum blockchain platform has the potential to shift the ETH market prices from speculation demand to benefit-driven valuation. This is possible due to the smart contract feature of the coin’s underlying protocol that allows users to complete transactions such as making a purchase without employing a third-party to oversee the whole process.  

Simply put, ETH isn’t just focused on cashing in the chips; instead, it’s focused on having a real-world use. This way, it’ll stick around for a long time and derive value from its transactional benefits. 

As Wall Street continues to work hard towards embracing cryptocurrencies, the launch of ether futures is critical, as it will incentivize deep pocket investors to enter ETH trade without necessarily owning the underlying asset. This might spark off an aggressive short-selling spree, but it might be a healthy thing for the market since it’ll help shift the focus to the real value of Ether. 

Companies who had raised money through ETH tokens – ERC20 – will, however, be affected if eth futures end up triggering short-selling panic. To hedge against further losses, these companies may resort to selling their token’s value for BTC or fiat currencies. In any case, whatever the resultants effect will likely increase Ether’s trading volume. 

With the increasing trading volume, more tools will be developed for seamless trading. Transactions will be faster, and even the current problems in the crypto-market, such as scalability, may eventually be solved. 

Besides the trading volumes and increased investment, Ether futures will help stabilize prices of the coin itself and, to a certain degree, those of Bitcoin. See, futures are, essentially, contracts to buy or sell a certain amount of an asset at a specific day and time. This is particularly useful when the underlying asset is highly volatile, which is the case with Ether. The rationale is that futures enhance liquidity, which is inversely proportional to volatility. 


There are lots of mixed reactions about the expected launch of Ether futures. With Bitcoin options also hitting the market in the first quarter of 2020, perhaps, it’s best that ether futures are put on hold. 

For ETH, it’s futures may not attract a significant number of investors, since they are not the first of their kind to be launched. Nonetheless, their market debut will signify the maturation of the crypto-market, earning it mainstream acceptance. If the futures turn out to be as successful as Bitcoin’s, it might open the way for ETH options and other sophisticated trading instruments. 

However, before that, Ether will have to first mitigate the regulatory handle brought about by its algorithm change. Currently, analysts fear that the ETH may start out as a commodity but end up having a tangible value as it gets more decentralized. 


Crypto Videos

Hedging Your Cryptocurrency Portfolio Part 3 – The Best Methods Explained

Hedging your cryptocurrency portfolio – part 3/4


Options are a fairly new and limited concept in the cryptocurrency space. The only exchanges that actually offer it are Deribit and Bitmex.
Hedging using options can be pretty complicated. There are multiple ways you can build exactly what you want. We will show one of the most straightforward ways you can hedge out downside risk.

Why You Would Use This Method

One of the main benefits of hedging by using options is the difference in the payout. Hedging by buying put options can turn your existing options into a call option payout (which have limited downside with unlimited upside). The caveat to the method is that options, especially in the cryptocurrency market, are quite expensive.

Another great thing is that the margin does not need to be monitored as we are purchasing options to construct the hedge. These pros make it a fairly good method for investors that:
Are looking to hedge their positions but cannot, or don’t want to monitor their margin requirements Want the downside protection while still maintaining the potential upside gains.

How to Construct it

You will need:
An account with Deribit (they are the only exchange that offers crypto options)
The steps to constructing this method are similar to using futures:
Based on the current price of Bitcoin and your expected hedging time frame, check for the closest in the money (ITM) put option.
As an example, if BTC is at 6432 and you would like to hold it until the end of the quarter, look for the 6500 put option pricing for the end of the current quarter.
Check the current price of your chosen ITM put option and calculate how much funds you would need to deposit so you could make a 1:1 coverage of your BTC holdings.
Deposit the predetermined funds into the exchange.
Purchase the put option and simply hold it until expiration.


Hedging with options can be quite a complex task. However, this also means that it can be better tailored to your needs. If you want to use options to hedge and you want to hedge frequently, learning all there is about options is certainly a no-brainer.
Options hedging, as any type of hedging, has its Pros and Cons:

Check out our final part of the Hedging your crypto portfolio, where we will talk about hedging by using Perpetual Swaps.


What are Bitcoin Futures? 

Futures markets have, for long, been in existence in more established asset classes such as securities and bonds. However, it was not until late December of 2017 that Bitcoin futures were introduced on regulated trading avenues. Although it is the only one of their kind in the digital currency space, Bitcoin Futures is regarded as a significant milestone in bringing cryptocurrencies closer to mainstream investing. 

Similar to any commodity/asset futures, Bitcoin futures are not necessarily for maximizing profits but rather serve as a risk management tool to hedge against the risk of the volatile crypto market.  

To understand what exactly are Bitcoin futures, it demands we explore how typical futures contracts work in the first place. 

What are Futures Contracts?

Futures contracts are basically an agreement between two parties to buy or sell an underlying asset at a predetermined price on a precise future date. Once the contract expires, both parties are obligated to fulfill the terms of the contract at the agreed price, regardless of the actual price at the time of contract execution.

The parties involved usually take one of the two positions of a futures contract; long or short. If you take the long position, it means that you agree to buy the underlying asset/commodity at a specific price in the future, while the short position means the other party agrees to sell the asset at a specific price once the contract expires. 

The idea here is to hedge risks associated with adverse price movements of the commodity. If, for instance, you expect the price of a commodity to rise, you can take the long position in a futures contract at the current market price. Upon the expiration of the contract, if the price rose, you’ll have saved some money since the contract will be executed at the lower market price as agreed.   

In the same vein, futures can also be used to speculate price movements to realize profits. For instance, if the buying party anticipates that the price of the asset will rise leading up to the expiration date of the contract. They can profit off the price difference, if indeed the price rises, by selling the contract at a higher price to another party, before the expiration date. 

How do bitcoin futures contracts work?

Bitcoin futures are similar to traditional financial futures, in that they allow you to speculate the Bitcoin’s price without having to own any Bitcoin. 

Investors can either take the long position on Bitcoin futures contract, if expecting prices to increase or short position if they own Bitcoins and want to mitigate potential losses from the anticipated drop in BTC prices. 

For instance, say, you own 10 Bitcoins at a market value of $5,000 for each coin, and you anticipate the price will drop to $4,000 in two months. You can take a short position, and agree to sell your Bitcoins at the prevailing market price. Close to the expiration date of the contract, you can decide to buy back (long position) the futures at the now low BTC price, thus earning you $10,000 while saving you the losses caused by the drop in price. 

Bitcoin futures unique advantages

I. Regulation

The crypto universe is torn between two major groups; those that want the coin to remain unregulated and those that believe regulation of BTC is an essential step towards mass adoption. 

Bitcoin futures are regulated by the Commodity Futures Trading Commission (CFTC). This places BTC on a path to mass adoption. It should be noted that CFTC is not as strict as its alternative, Security Exchange Commission (SEC). So, Bitcoin maintains a good deal of its liberal nature. 

II. Enhanced Liquidity

Thanks to the regulatory rules imposed by CFTC, Bitcoin futures are becoming more appealing to professional traders and big money Wall Street investors. With their more dollar volume input, BTC futures may become even more liquid than Bitcoin itself. 

III. Price Transparency

Bitcoin futures contracts are settled each trading day using a transparent reference price, which is written into all Bitcoin contracts in other markets. This will make it easy to use Bitcoin as a payment method since transparency creates a unified price that is essential in mitigating the volatility of spot prices. 

Getting started with Bitcoin futures trading

Now that you understand how to place and execute a Bitcoin futures contract, there are a few crucial things you need to know for profitable trading. 

Get Familiar with the Trading Rules

Trading Bitcoin futures is a bit different from trading typical equities and bond futures. This is due to the fact that they have a significantly higher margin requirement compared to a regular futures contract. 

Chicago Mercantile Exchange (CME) and Chicago Board of Exchange (Cboe), the main Bitcoin futures trading avenues, requires one to put up a 35% and 44% margin, respectively, of the futures contract value. Although this margin can be achieved by trading other financial products on the exchange, the products aren’t offered to new traders. 

Margin is basically the amount of money a trader must pay first as collateral when taking a futures position. Usually, for most traded assets, the margin is under 10%. 

So, this is to say that if a contract was trading at $10,000 on CME, a trader wishing to take a long or short position, will have to pay $3,500. The trader can also be subjected to additional margin calls if the account falls below a certain level. 

Understanding Price Limits

Price limits are the maximum price ranges allowed for a futures contract in a trading session. Bitcoin futures are subject to limits on how far the price can move before triggering a temporary or permanent halt. 

In the case of Cboe, a contract will be halted for two minutes if the best bid, leading to the contract expiration date, moves 10% up or down the previous day’s prices. 

Build a Trading Strategy

Developing a trading strategy is fundamental when trading any type of financing product, including Bitcoin futures. 

Your trading strategy should revolve around what you want to achieve – prevent loss or make a profit- while paying attention to your risk appetite. For this reason, consulting an experienced futures broker is recommended, so as to design a personalized strategy that is aligned to your objectives. 

Besides, trading directly on CME is almost out of reach due to the high cost a trader is required to pay before they can trade on the platform. As an individual investor, you, therefore, need to find a broker who trades on CME. 


One of the best things about Bitcoin futures is that you don’t need a wallet nor BTC coins to participate in the trade. Bitcoin futures, like most futures contracts, are settled in cash equivalents, so no tangible coins are exchanged between parties, saving you the hassle of owning or storing digital coins. Traders collect their gains once the other party honors their contract obligation. Also, you can conveniently place a short without necessarily borrowing the underlying asset ( Bitcoins), meaning you don’t have to own any coins. 

As lucrative as it may sound, it is important to keep in mind that Bitcoin futures are a highly risky investment instrument. As such, it is advised to only invest that amount you can afford to lose, should the contract go opposite of what you initially speculated. However, there is always the option to close out a position before the expiration date, in an effort to minimize or entirely avoid losses.