The CME Group one of the worlds largest exchange operators and one of its most active futures markets is to add to its cryptocurrency product range with the introduction of micro futures on Bitcoin. The contracts, which are over one-fiftieth of a standard futures lot, will join the exchanges existing full-size contracts over Bitcoin and Ethereum.
The CME has emerged as the principal market for Crypto derivatives and has been able to capture institutional business in the space, but as Bitcoin has appreciated it has become increasingly expensive for retail traders to participate in the CME futures market through futures brokers.
Whereas on physical Bitcoin exchanges such as Coinbase and Binance they can trade in fractions of a coin. The new micro contracts will go some way to redressing that balance.
Exchange-traded futures on cryptocurrencies offer advantages compared to physical Bitcoin trading, as the contracts are centrally cleared and backed by a clearinghouse, which acts as the buyer to every seller and seller to every buyer. There are no concerns about counterparty risk or about being able to access or withdraw funds from your account.
Of course, traders will need to have an account with a futures broker to be able to access the CMEs new products. The CME also offers options on Bitcoin allowing traders to create arbitrage and spread trading strategies between the two.
The CME contracts are CFDs in that they are cash-settled, rather than deliverable, meaning that there are no issues in terms of the need for secure storage of any coins or private keys, which have created issues for cryptocurrency traders and targets for scammers and hackers.
The new contracts will trade from the 3rd of May and there will be 6 consecutive delivery months trading at any one time.
Mini and more recently micro futures have proven to be immensely popular in other products. The CBOE and Brazils B3 exchange have reduced size contracts that have become some of the most actively traded financial futures in the world, and the CME will be hoping to emulate that success.
If the Bitcoin micro futures are well received it’s probably safe to assume that a reduced size contract over Ethereum could follow and there have even been reports that the exchange was considering the viability of Dogecoin future, so watch this space.
As with all CME products, there is plenty of useful information and educational material about the contracts on the exchange’s website.
We are all for reduced size contracts, increased accessibility and markets being opened up to a wider audience, that said derivatives of any size are leveraged products and therefore need to be respected. And given the FCAs clampdown on the marketing of cryptocurrency derivatives to retail clients in the UK, it may not be that easy for our readers to trade the new CME products, despite that their introduction is certainly a step in the right direction.
Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis