Bitcoin Futures for the People



Dueling bitcoin futures come out soon from Chicago. One from the CME and the other from the Chicago Board of Exchange (CBOE). Much has been made of futures contracts on bitcoin, but the contract specifications themselves are most important for market participants. CME’s bitcoin futures favor institutional investors while those from the CBOE are beneficial to individuals.

Futures are financial contracts for the delivery of and payment for commodities on a date in the future. In the past, the commodities were physical assets such as corn and then financial assets like bonds and stocks, starting in the 1970s. Now, bitcoin is the commodity. Futures can be use to shift risk, speculate on price, and act as a substitute for the commodity itself.

Futures contracts can be purchased on margin, similar to the down payment when buying a house. Each futures exchange (CME, CBOE) sets the margin percentage and amount of margin is based upon the contract’s value. So if margin is 30% and the contract value is $10,000, then only $3,000 is needed to purchase the futures contract.

Contract value is based upon a multiple of the underlying commodity, in this case, bitcoin. CME’s  bitcoin futures multiple is five while only one for CBOE’s bitcoin futures. So if one bitcoin is worth $10,000, then contract values are $50,000 and $10,000 respectively. This means, that less margin is required to trade the CBOE bitcoin futures and than for those from the CME.

It also means bitcoin futures from the CBOE will favor the individual, rather than the institutional investor.