Please note that since this article was written the FCA has banned retail traders from trading cryptocurrency derivatives. If you would like to speculate on Bitcoin and cryptocurrencies you need to use a cryptocurrency exchange or professional trading account.
Way back when in ye olde days a bunch of farmers would meet at coffee houses near the London stock exchange to sell crops they did not own, to people who didn’t really want to buy them.
This was how the futures market started.
A futures contract is an agreement to buy a certain amount of something for a specific price at a specific date in the future.
You didn’t have to pay for all of it, just a small deposit in case you welched on the deal.
It would allow manufacturers to pay the days rate for crops that had not yet been grown and was the original form of hedging. Mainly to lock in a price in case there was bad weather and the price went up.
Of course, greedy people sought to profit by predicting bad weather, buying crops, then selling them on before they had to pay for them in full.
But, that’s what makes a market.
Anyway, all this speculation and trading was eventually centralised into various exchanges such as the CME, NYMEX, LIFEE and the London Stock Exchange for UK stocks for example.
Now, you can buy futures in Bitcoin.
That means, instead of a CFD or a spread bet where the trade cannot result in the acquisition of the underlying asset, but is instead a bet or contract based on how the price moves.
The CME now offers Bitcoin futures where you can lock in a price now for settlement in the future.
As yet there are no futures for trading Ripple or any other cryptocurrency, for that you need a CFD broker or a spread betting broker (if you want tax fee trading).
Unfortunately, it’s a cash settled future which means you don’t actually get Bitcoin at the end of it. Just a cash settlement by reference to the Final Settlement Price, equal to the CME CF Bitcoin Reference Rate (BRR) on the Last Day of Trading (sounds fun right?)
Anyway, if you actually want to trade Bitcoin futures, you need a futures broker, we’ve put together a list of the best futures brokers so you can compare what they offer.
Keep in mind though that futures trading is for professionals and if you are a private trader you probably won’t be able to open an account unless you have at last half a million to play with.
You can see the CME Bitcoin contract specifications online here.