Last week the first cryptocurrency futures contract in history was traded at the CBOE. Now it has competition. On Sunday evening, at 5pm, Bitcoin futures started trading at the Chicago Mercantile Exchange (CME). Let’s take a look at some of the differences and similarities of the two contracts, but pay close attention to the margin requirements; we will make a recommendation at the end.
- The CBOE uses the symbol of XBT, while the CME is now using BTC. If you access futures on the Think or Swim platform, for example, you would type in /BTC and the January 2018 contract will come up.
- Neither of the exchanges hold actual Bitcoins, so you cannot take delivery at expiration. Both the CBOE and CME settle in cash.
- Pricing of the two contracts are different. The CBOE use one price from the Gemini cryptocurrency exchange, while the CME’s contract uses an average from four different cryptocurrency exchanges. Since the price varies widely between these other exchanges, using the CME’s approach seems better.
- The CBOE margin for its contract changed a lot prior to last week’s first trade. Now, however, it has settled at 44%. Since one contract represents one coin, if that coin is worth $18,000 then the overnight margin will be $7,920.00. Clearing firms, however, are demanding more, with 50% being the current average.
- The CME margin percentage may be lower, but the dollar margin to trade it will be 5 times larger. The CME contract represents a 5-coin contract; therefore, the same $18k price for one coin will have a notional value of $90,000.00 each. Although the CME margin is lower at 35%, that’s still 35% of a much larger number.
- Clearing firms will be demanding (from what we’ve read) a 50% margin for both contracts.
As this is being written, the CME Bitcoin futures opening price was $20,650.00. It is currently at $18,440.00…or a $2,210.00 loss per contract/coin in minutes. So whoever bought the top (open) of the CME contract, is down over $11,000. And that sort of volatility is why exchange margins are high to begin with, but also why clearing firms want even more.
Since the CME 5-coin contract of Bitcoin will have a margin of roughly $45,000.00 each, it’s fair to call it an institutional product. So if you would like to trade a more modest contract, we would highly recommend that you call the CME directly and ask them to establish a “mini” contract of one coin as soon as possible.
The ratio of the big S&P500 to the e-mini contract is 5-to-1, so with an institutional 5-coin Bitcoin product out, it is quite possible that the CME exchange had this in mind from the beginning. Now it just needs a little push from its customers to roll out the mini-Bitcoin contract ASAP.
*CME Group / Chicago Headquarters
*Toll Free (US Only) 1-866-716-7274