Bitcoin Futures – Brokers & Trading Guide

A Futures contract is a contract between two parties, in which they agree to exchange an asset in the future at a specified price and appointed date. Such financial products are traded by firms and investors since more than 100 years. There are Futures based on more or less every big asset, be it oil, gold, steel, stocks or bonds.

Before December 2017, BTC Futures have exclusively been tradable on BTC deposit-based Bitcoin Futures Brokers such as BitMEX (or OKcoin, which is one of the biggest Chinese Bitcoin trading platforms). As BitMEX is a platform which only accepts BTC deposits, the market was only used by people (retail traders) for whom Bitcoin deposits were possible.

Since December 2017, however, Bitcoin futures are tradable on CME – a leading global derivatives trading platform. This opened Bitcoin Futures trading to big institutions with their tremendous amounts of fiat cash. The new trading opportunity attracted Wall Street companies to Bitcoin and crypto trading as now they were able to profit from BTC price movements with US Dollar capital.

What exactly are Bitcoin Futures?

Bitcoin futures are contracts established in the crypto market that stipulate a certain price for BTC on a certain date. These contracts can be bought or sold depending on the trader's market analysis, which determines a price level that, when the contract expires, must be reached in order to obtain benefits.

How do Bitcoin Futures work?

The best way to explain how future Bitcoin contracts work is through an example. Suppose the current price of 1 BTC equals $5,000 USD. A trader who has done a previous analysis on price patterns determines that the cryptocurrency is about to enter the bull trend and decides to buy 2000 BTC/USD contracts. If at the expiration date of the contract, the price of BTC increases to $5,500 USD (5%), you will have obtained $100 USD of benefits at the end of the negotiation.

By stipulating a certain date, buyer and seller protect themselves against market uncertainty. If there were an increase in the price of it, the buyer would benefit (long position). Whereas, if the price decreases, the seller would, thanks to the futures (short position).

How to invest in Bitcoin Futures

In order to properly answer this question we need to make sure that you know what kind of Futures you are talking about. "Real" BTC Futures, or the popular Perpetual Swap Contracts which some people refer to when they talk about Bitcoin Futures, even though those are not traditional futures in that sense. P.S.C.s are an adjusted form of Futures contracts which are more flexible.

Different Kinds of Bitcoin Futures

So there are mainly two different types of Bitcoin futures, as not all of these contracts have a precise expiration date. Traders will choose what kind of futures they want to trade depending on their experience with each one. It should be noted that even though crypto exchange platforms usually have a futures section, not all of them support both traditional futures and perpetual contracts.

1. Traditional Futures

As explained above, these contracts work on the basis of protecting a position from volatile market movements and predetermines a price level for a specific date, regardless of the price patterns presented until that day. If you enter long and the price increases, the benefits will be attributed to the buyer. On the other hand, if you go short and the price falls, the benefits will go to the seller.

Typical fee models of BTC Futures trades

Future contracts carry fees charged by the exchange company. In fact, these platforms survive thanks to these fees and/or spreads between bid and ask price.

The exchange platforms that have futures trading will have a particular fee system that keeps the market going. These fees involve “Makers” and “Takers”, whose relationship makes them need each other. Basically, they exist to provide liquidity within the market, as they are the ones in charged of filling the order books.

Maker Fees

Makers build the market and inject multiple limited transactions into the order book, both long/short orders. A fee is deducted from the transaction size for market makers, although these fees are usually smaller than the taker fees. This was designed these way because marketplaces (exchange companies) need liquidity on the market, so they go easy on makers (who are in charge of providing trading volume).

Taker Fees

Takers are the people who execute the orders, that is, "remove" them from the order book. Takers execute orders to consume the limited orders that makers place. An example of this could be the people who take the products products from a shelf at a store, thus emptying it so the maker will fill it up again.

Settlement Fees

A small fee that takes place at the end of the contract for traditional futures. It should be noted that perpetual contracts do not charge this fee, as they don’t have an expiration date.

2. Perpetual Swap Contracts

Perpetual swap contracts are basically the same as traditional futures contracts, but in contrast to the latter they do not have an expiration date (which is why they do not have a settlement fee either). This type of trading within the Bitcoin derivatives markets allows you to maintain your position forever as long as you have sufficient funds to cover the size of your order.

Think of these contracts as some sort of margin trading-spot market kind of product, where time is not against you.

Typical fee models of Bitcoin Perpetual Swap Contracts

As with traditional futures, Marker and Taker fees will be charged, which will vary depending on the exchange we use to trade (some platforms charge more, others charge less).

As mentioned above, Perpetual Swap Contracts do not have an expiration date, so Settlement Fees will not be charged in this mode. On the other hand, what makes Perpetual Swap Contracts fees special is the Funding Rate.

The Funding Rate

What exactly is the Funding Rate?

In order to understand what the funding rate really is we have to know why it exists. In normal market conditions, the futures will be traded at a premium in relation to the spot prices, meaning that the spot price is slightly below the futures price. Since Perpetual Swap Contracts are these “synthetic” derivatives and do not expire, they have to track the spot instrument.

Considering leveraged positions are way bigger than normal positions, the market tends to move a little bit more in comparison to other crypto exchanges, thus creating a price variation with the actual spot market price.

So, the funding rate is an instrument used by Peer-to-peer exchange platforms to incentivize participants to move the price back and keep it hand in hand with the underlying spot instrument. In short, funding makes the prices of futures and underlying cryptocurrencies converge. Note that both sides of the market (longs and shorts) pay funding depending on the current market trend, something like an interest rate but traders won’t have to pay it every time they place a position.

Funding is paid every 8 hours if a trader holds his position during this time. If he cancels the order before the specified time he will not be charged with funding rates.

If futures price is being traded at a discount to the spot price (meaning it’s below), longs get paid by shorts. In the reverse case, shorts get paid by longs. Think of funding as a mechanism to incentivize traders to take the opposite side of the market and move the price back.

Reasons to trade Bitcoin Futures

There are several reasons why experienced traders usually run their trades through futures contracts, mostly because having an expiration date covers your position during the time it gets to reach said date.

Assuming you bought “X” number of contracts for “Y” date at a specific price, it means that the profit (or loss) will result from the price the underlying asset has by the time the contract expires, regardless of how volatile it was during that period. This helps trader to cover their backs while their position awaits.

Another reason traders often choose futures trading is how they can amplify their earnings with each trade. Leveraged positions can be dangerous, but with safe risk management and knowledge on the market, profis will be received.

Hedging / Risk Management

The risk management tells you how to set up your positions by calculating how much you are going to invest, the leverage level and how much you want to earn per trade. Usually traders set leveraged orders with 3% of their capital targeting a 6% (or more) profit, which means that if the market turns against them and have to cancel their positions they would lose 3%., but if they reach their target, earnings will be greater. This gives them a chance to keep winning even if they have negative trades.

Hedging is actually a renowned strategy, as it helps traders to protect their positions through parallel orders in the opposite direction. Whatever they can lose in an unexpected move, they will earn it back with the other order. If they spot the beginning of a trend that favours one of these positions, the other one is cancelled.

Speculation

Futures traders are speculative investors for getting into risky positions in the market and obtaining big profits, even though they could lose their funds if they lack an optimal psychological setup.

Where to trade Bitcoin Futures?

You can trade Bitcoin futures in any exchange company with a BTC futures section. There are multiple trading platforms that support traditional futures and/or perpetual swap contracts.

The Major Difference of Bitcoin Futures trading on Wall Street broker platforms (CME) compared to unregulated cryptocurreny deposit-based Bitcoin Futures Brokers (e.g. BitMEX):

The specialty of Bitcoin Futures on regulated Wall Street broker platforms such as CME is that the BTC futures are traded in fiat currencies only. So there will never be an actual Bitcoin transfer between the contract parties.

Firms basically place price bets on the future Bitcoin price of a certain forthcoming date, and profits or losses will be in fiat money only. That's the reason why it's now possible for institutions to participate in Bitcoin trading in general, as they are only able to trade in fiat money based markets, such as Bitcoin Futures.

On BitMEX, on the other hand, traders have to own real bitcoins to participate in the Futures markets. So in this case real bitcoins are being exchanged between the winners and the losers of long and short positions.

Platforms with "Traditional" Bitcoin Futures

1. Regulated US Brokers:

CME Group

Product: Monthly BTC Futures contracts
Min. Investment: 5 bitcoin (1 contract unit)
Settlement: Cash (USD)
Initial margin: ~34%

CME is the largest financial derivatives exchange company on the planet offering investments in markets such as corn, oil, soybean, Forex, NASDAQ and multiple other trading products. Users from multiple countries around the world can participate in the platform after providing KYC (Know Your Customer) information and verified. Since CME Group operates under regulations in the United States, it should be noted that they take verification of their users very seriously.

It should also be noted that CME Group provide services to both retail and institutional traders through their personal and institutional accounts.

TD Ameritrade

Product: CME Group Monthly BTC Futures contracts
Min. Investment: $25,000
Settlement: Cash (USD)
Initial margin: 66%

TD Ameritrade is a Nebraska-based broker with a particular financial assets trading platform that includes multiple markets such as NASDAQ, preferred stocks, futures contracts, publicly traded funds, options, mutual funds and fixed income investments. When it comes to Bitcoin it's the CME Bitcoin Futures product you can trade on TD Ameritrade .

This broker can be used by both institutional and retail investors in more than 100 countries, with the unfortunate exception of countries such as Australia, Canada and the European Union. TD Ameritrade regulations are enforced by a federal functional regulator.

Each account is under the protection of the Securities Investor Protection Corporation, so it is very safe to have an account with this broker. It is important to highlight that the leverage in TD Ameritrade is 3: 1 for stocks, 50: 1 for Forex and 2: 1 for Bitcoin futures (which can only be accessed if you have a $25.000 account).

For sign ups, this broker requires your Social Security Number, birth date, work info and e-mail.

Bakkt

Product: Bitcoin Daily Futures contract (USD) | Bitcoin Monthly Futures contracts (USD)
Min. Investment: 1 bitcoin (1 contract unit)
Settlement: Cash (USD) or bitcoin (BTC) at choice
Initial margin: ~ 37%

Bakkt is a sister company of the New York Stock Exchange, both companies belong to ICS (Intercontinental Exchange). Bakkt is a trading platform for digital assets that also offers warehousing for such for investors, e.g. for bitcoin. What's special about this New York-based regulated exchange is the fact that they offer "real" bitcoin Futures trading which means that traders gain or lose real BTC with their trades. The futures you can trade there are traditional futures contracts (with fixed settlement date for the contracts). Bakkt offers different BTC futures products alongside Bitcoin options.

ETrade

ETrade is also one of the leading online trading platforms where even retail traders get access to derivatives such as Bitcoin Futures. Here again it's the CME Group BTC futures product you can trade on ETrade.

CBOE

For a short time, CBOE, a leading US online exchange, also had Bitcoin Futures in its derivatives offering, but this business was soon discontinued. Apparently it did not pay off for CBOE in the 2018 bear market of Bitcoin. In addition, too many offers of this type may have been launched at the same time, which meant that not every trading platform could get a sufficient number of customers.

2. International Cryptocurrency Brokers:

BitMEX

Biggest cryptocurrency trading platform for traditional futures

Product: Monthly, Quarterly and Perpetual Bitcoin Futures
Not available for citizens & residents of the USA
Min. Deposit: BTC-value of 1 USD
1 Contract Unit: 1 USD
Trading Hours: 24/7
Settlement: Cash settled
Initial margin: 1% (100x Leverage)

 

BitMEX is the second biggest cryptocurrency exchange for traditional futures and perpetual contracts within the crypto market. This platform is the perfect choice for trading Bitcoin derivatives.

The BitMEX services are allowed in most countries with the exception of Hong Kong, USA or any country/region that underlies US law, Québec (Canada), Bermuda, North Korea, Syria, Iran, Sudan, Cuba, the Republic of Seychelles, Crimea & Sevastopol.

This platform is mostly used by retail investors and offers up to 100x leverage for XBT/USD contracts (BitMEX has both traditional futures and perpetual contracts). Since it is not a regulated exchange, users won’t have to go through KYC procedures and will be able to directly withdraw their funds with Bitcoin.

Being the second exchange with the highest transaction volume, it is always a target for hackers and phishing attackers. Luckily, BitMEX has a decent security system that will keep your funds safe.

Kraken

Product: Monthly, Quarterly and Perpetual Bitcoin Futures
Not available for citizens & residents of the USA
Min. Deposit: 1 EUR | 20 USD | 150 GBP | 20 CAD | 15,000 JPY
1 Contract Unit: 1 USD
Trading Hours: 24/7
Settlement: Cash settled
Initial margin: 2% (50x Leverage)
Sources:

• Futures Settlement
• Futures Transaction Fees

Kraken is a regulated USA-based cryptocurrency exchange with its own futures section. This platform offers a safer trading experience and it is completely available for both US retail and institutional clients.

Kraken offers up to 50x in main traditional futures pairs (whether you’re a retail or institutional client) and it does require users to verify their accounts through a KYC confirmation. This is a regular procedure within regulated exchange companies.

The exchange do not offer its services to Afghanistan, Cuba, Guinea-Bissau, Iran, Iraq, Japan, North Korea, and Tajikistan residents.

Users should know that Kraken is regulated by the FCA (Financial Conduct Authority) and in Australia by the Australian Securities & Investments Commission.

Deribit

Product: Monthly, Quarterly and Perpetual Bitcoin Futures
Not available for citizens & residents of the USA
Min. Deposit: 0.001 BTC
1 Contract Unit: 10 USD ($1 per index point)
Trading Hours: 24/7
Settlement: Cash settled
Initial margin: 1% (100x Leverage)
Sources:

• Futures Contract Specifications

Deribit is a popular, unregulated and liquid Bitcoin derivatives platform where users can trade with traditional futures, perpetual contracts and BTC options. This platform is available for almost every country except Canada (province Quebec), Guam, Iran, Iraq, Japan, Democratic People’s Republic of Korea, Panama, Puerto Rico, Samoa, Sudan, Syrian Arab Republic, United States, and Virgin Islands (US).

The maximum leverage for futures and perpetual contracts is 100x and allows you place orders with whatever minimum amount you choose.

Deribit is quite a safe platform and focuses on retail investor accounts and allow users to sign up only by confirming their email and entering their login data.

Binance

Product: Quarterly and Perpetual Bitcoin Futures
Not available for citizens & residents of the USA
Min. Deposit: No minimum
1 Contract Unit: 100 USD
Trading Hours: 24/7
Settlement: BTC-settled
Initial margin: 0.8% (125x Leverage)

Binance is currently the number 1 cryptocurrency exchange on the crypto market with a spot, margin and futures trading platform through a fast transaction matching engine. On Binance futures, users can trade perpetual contracts with 125x leverage (or less, depending on your strategy).

It is safe to say that Binance is on of the safest cryptocurrency exchange companies out there, as they have shown to deeply care about looking after their users’ funds and accounts.

The exchange platform is available for all countries except for Iran, Belarus, Serbia, Bosnia. Myanmar and the United States.

Binance used to offer their services only to retail investors until 2018, when they started supporting institutional accounts for companies.

After you sign up through your e-mail, you can complete a KYC verification process in order to verify your account and access more trading features and higher leverage levels.

OKex.com

Product: Weekly, Bi-Weekly, Quarterly, Bi-Quarterly
Not available for citizens & residents of the USA
1 Contract Unit: 100 USD (in BTC)
Trading Hours: 24/7
Settlement: BTC-settled
Initial margin: 1% (100x Leverage)
Sources:

• Futures Contract

OKex is a cryptocurrency exchange platform for spot, margin, options, traditional futures and perpetual contracts trading. Having such high transaction volume levels, accounts in OKex re heavily guarded by its security system.

This platform offers up to 100x leverage for futures trading, which can really amplify your earnings within the exchange.

OKex is one of the few exchange companies to create a SRO (Self-regulated organization) instead of being regulated by other financial/government institution. However, it does require you to verify your account with a KYC process.

This particular exchange company is directed to retail investors, as they don’t have institutional accounts or benefits for one. OKex works in almost all the countries around the world without further inconveniences.

Platforms with Perpetual Contracts and their Specs:

Please Note: All platforms listed below cannot be used by citizens & residents of the USA as cryptocurrency CFD trading with high leverage is prohibited by U.S. law.

BitMEX

BitMEX BTC perpetual contacts are listed as XBT/USD.

• XBT/USD can be leveraged up to 100x.
• Funding as paid and received every 8 hours.
• Each contract is worth the BTC equivalent to 1 USD.
• -0.0250% Maker rebate
• 0.0750% Taker fees
• Minimum contract size $1 (in BTC)

PrimeBit

Bitcoin contracts listed as BTC/USD.

• BTC/USD leverage up to 200x.
• Each contract is worth 0.0001 BTC (equivalent to 1 USD).
• Funding occurs every 8 hours
• 0.0250% Maker rebate
• 0.0750% taker fees
• Minimum contract size 0.0001 BTC

Bybit

Bitcoin perpetual contracts are listed as BTC/USD.

• BTC/USD leverage up to 100x.
• Each contract is worth 1 BTC.
• Funding occurs every 8 hours.
• BTC lending rate is 0.03% and USDT lending rate is 0.06%.
• -0.0250% Maker rebate
• 0.0750% Taker fees
• Minimum contract size of 0.001 BTC

PrimeXBT

Bitcoin contracts listed as BTC/USD.

• BTC/USD leverage up to 100x.
• For other instruments up to 1000x.
• Overnight funding rate 0.04166%.
• Minimum stake 0.001 BTC.
• Maximum contract size of 150 BTC.
• 0.05% trading fees.
• Minimum contract size of 0.01 BTC.

Overbit

Bitcoin perpetual contracts are also listed as BTC/USD.

• BTC/USD leverage up to 50x.
  
• For Forex CFDs up to 500x.
• Each contract is worth the exact amount of bought/sold BTC.
• Funding happens every 8 hours.
• Maximum contract size of 50 BTC.
• Trader can choose between Spread and Fee.
• Fee would be 0.075% when opening and closing a position.

Phemex

The Bitcoin perpetual contracts are listed as BTC/USD.

• BTC/USD leverage up to 100x.
• Each BTC/USD contract is worth the BTC equivalent to 1 USD.
• Funding happens every 8 hours (0.01% funding rate).
• Perpetual contracts have automatic deleveraging.
• Minimum deposit 0.00000001 BTC
• No trading fees
• Minimum contract size $1 (in BTC)

 

How Futures affect the Bitcoin Spot Market Price

As we have previously explained, the price of futures has the ability to slightly affect the price of the Spot market, specifically in the case of Bitcoin.

Due to a high volume of transactions, which have been established as "long" or "shorts", trends will be established that will affect these markets. It is possible that the Spot price remains below the futures price or vice versa, which will define the course of the funding rates.

Regarding the influence of the futures market on the spot, it should be noted that the last years have meant a high rate of adoption of bitcoin futures by institutional investors, who inject large amounts of BTC into the futures market to determine a price at a certain date, which in turn activates new trends within the market.

What Do Bitcoin Futures Mean For Bitcoin?

The fact that Bitcoin has become one of those big assets can generally be seen as a sign that the world's first and largest cryptocurrency (in terms of market capitalization) has finally passed the border into being taken for serious by the global finance markets.

Initial Concerns of Bitcoin Enthusiasts

Bitcoin's step into the Wall Street world of high scale derivatives trading caused concerns for some people at the beginning. They were worried that there would be a huge imbalance between the demand for real Bitcoin and the demand for Futures contracts.

They were worried that Bigger Investors, which had caused much of BTC's bull run before December '17, might want to sell their enormous BTC positions as the Futures market might look easier to handle and safer and therefore more attractive to them.

Another concern is that institutional enemies of the Bitcoin technology might set large amounts into a negative price estimation (Future shorts) to influence Bitcoin's price downwards to suit their own. You can read more details about such concerns in this coindesk article.

Final Thoughts – The Tremendous Value of Bitcoin's Technology

Bitcoin's underlying technology and its benefits are a counterweight to such concerns because of big institutional Futures trading.

People who worry a lot about a massive negative price influence of Bitcoin Futures played by big market makers should not forget one point:

The reason why Bitcoin is something highly valuable is not only because of it's limited supply and because it being seen as an easy tradable asset.

The point of Bitcoin is that it brings an entire new underlying finance system which is borderless, neutral, peer-to-peer, (relatively) anonymous and instant – it's a new way to transfer value all over the world, where no bank and authority is needed anymore.

There is a lot of demand on earth for exactly this kind of technology which means so much benefits compared to the traditional banking system.

So even if Wall Street shorts Bitcoin Futures to influence the Bitcoin value to a downtrend, long-term there is still this high demand for the new neutral money system, and people have different reasons for that.

Think of people who search an investment which cannot be influenced or taken away by their government. Think of negative interest or even stealing money from citizens' bank accounts to "rescue" banks. Furthermore, think of BILLIONS of unbanked people on earth, in third world countries, with no bank account, who can start using cryptocurrency to finally also be able to receive and transfer value.

Billions of people on earth don't have a bank account, but many of them have a smartphone – or can at least share one within their family. The system of Bitcoin means that everybody is his own bank. The bank is replaced by the smartphone. Nothing more is needed to participate in the global neutral peer-to-peer money network which is Bitcoin.

Or think of the possibility to transfer value instantly, without waiting several business days of banks. The possibility to transfer money borderless, without needing to justify the transaction.. all those benefits will stay and let Bitcoin remain valuable.

So even if Bitcoin Futures could cause a short term price crash, the underlying basic value of the new money transfer technology will likely continue to rise in value in the long run.

Learn more about the internet of money from great speaker Andreas Antonopolis.

Other questions related BTC Futures:

When do Bitcoin futures start trading?

When do Bitcoin futures expire?

Why buy Bitcoin futures instead of bitcoin?