The Chicago based CME has announced the launch of Micro Futures on Ethereum this is the latest development in the CMEs rollout of cryptocurrency derivatives.
What are Ether Micro futures?
Microfutures are futures contracts with a much smaller contract size than their standard lot cousins.
In this case, the contracts are over the price of Ethereum the second-largest cryptocurrency by market cap, which was developed by Vitalik Buterin.
Unlike Bitcoin, Etherteum tokens can be programmed to enable smart contracts or to support NFTs which we can think of as digital collectables.
Ether Micro futures track changes in the price of Ethereum on physical cryptocurrency exchanges, however, the contracts themselves are cash-settled and are therefore considered as exchange-traded CFDs albeit with fixed contract sizes and expiry dates.
Micro Ether contracts are 1/10th the size of the standard CME Ethereum futures contract, they are quoted in US dollars and the minimum tick size is 0.10 of an index point which is worth one cent.
There are 6 consecutive contracts in issue, at any one time, which are supplemented by two December contracts.
These futures track a reference Ethereum price provided by data from the Bitstamp, Coinbase, Gemini, itBit, and Kraken exchanges.
The new contracts trade on CMEs Globex platform for 23 hours a day Sunday through Friday, with an hours break from 5 pm Eastern Time which is 10.00 pm GMT.
There are currently contracts for Dec 2021 out to June 2022 inclusive, plus Dec 2022 and Dec 2023 contract months. Though for the moment only the front months have any volume.
Where can you trade Ether Micro futures?
UK retail clients may have to shop around to trade in the new Micro Ether futures as the FCA has specifically banned the marketing and promotion of cryptocurrency derivatives to UK private investors.
That effectively meant London’s margin trading brokers had to mark cryptocurrency CFDs as closing only
In any event, you will need to find a broker that trades US on-exchange futures and options, one such broker is US-headquartered Interactive Brokers who are specialists in futures and options markets and who have a UK operation.
What are the risks of trading Ether Micro Futures?
The risk of trading Ether Micro Futures is the same as trading any leveraged contract. Leverage can magnify trading gains and also trading losses, which can be larger than your initial deposit or margin.
If your position moves against you will be asked to provide maintenance margin (more cash) or be forced to close all or part of your position.
And of course, if you are shorting the market you face a potentially open-ended risk of loss.
Cryptocurrencies are a new asset class and the underlying market which trades 24/7 can be extremely volatile. For example, Ethereum has had a $900, or 20% price range since the 25th of November.