Bitcoin futures trading is the future, and by now, I believe you must have figured it out.
For you, this might even be the reason today you are here, and I am glad for it.
To have Bitcoin futures contracts trading on exchanges for a volatile asset like BTC is, in fact, a blessing. Some experts do agree, and they have all the right to do so!
But I don’t agree with them, and that’s why even I am writing this in the first place.
Bitcoin and crypto futures contracts, if traded smartly, can help you hedge your positions and even profit from it if done smartly.
You probably already know about it, so let’s directly jump to talk about the best Bitcoin futures exchanges where you can do so.
On to the meat now:
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Best Bitcoin & Crypto Futures Derivatives Exchange
On the other hand, I would like to share the following crypto futures exchange where you will not only find Bitcoin futures but futures contracts for other popular cryptocurrencies such as ETH, XRP, LTC, etc.
ByBit-At first look of the website, it seems like a gaming website, but hell no.
It’s a Singapore-based crypto derivatives exchange launched in March 2018. It offers crypto-based perpetual contracts and primarily specializes in crypto-to-fiat perpetual contracts with 100:1 leverage.
In just a short period, ByBit has emerged as a popular choice among crypto derivatives traders and managed to build-up enough liquidity.
Let’s look at some of the features of Bybit:
- State of the art matching engine: The platform can support up to 100,000 transactions per second, which is ten times the industry’s speed. And, each transaction is settled within 10 microseconds.
- Asset security: All the funds are kept safe in a hierarchical deterministic cold wallet system, and manual withdrawals are processed three times a day.
- Deposits and withdrawals are supported in BTC, ETH, EOS, and XRP
- No server downtime
The second one is, of course, BitMex on our list.
BitMEX is exclusively started as a Bitcoin futures exchange and specializes in providing perpetual Bitcoin contracts without any expiry date.
I have traded quite a bit on BitMEX and found it easy to use. In terms of liquidity, it is second to none, and in terms of trading fees also it is good.
Furthermore, you will not only find BTC futures contract here but five other cryptocurrencies too. As of now, you can trade BTC/USD, ETH/USD, ADA, BCH, EOS, LTC, TRX, XRP with leverage option of upto 100x.
Lastly, whoever sign-ups using this exclusive link will receive a 10% fee discount for six months, and believe me, 10% is a lot when you see it over a while, especially in leverage trading when counted on notional value.
Note: BitMEX futures are settled in BTC.
Binance is the first one on our list because it exclusively offers Bitcoin futures contracts as of now.
Though it started trading BTC futures recently, it has started getting a lot of traction from the community primarily due to its previously established brand name.
Furthermore, when you trade, BTC futures liquidity is the key, and Binance is a leader in that.
As of now, Binance is only providing BTC/USDT, which is expected to expand to other cryptocurrencies very soon. Also, ist BTC futures trading fee is the lowest in the industry with a 50% discount for the initial three months of registration.
Lastly, it doesn’t make sense to have futures without leverage, and that’s why Binance is providing the highest leverage of 125x on BTC/USDT pair.
Note: Binance futures are settled in USDT.
Derbit is another decent exchange specially designed to trade cryptocurrency futures contracts, which are perpetual.
The exchange has been here for a couple of years and in this short time, has garnered support from Bitcoin and Ethereum futures traders.
As of now, Derbit only offers futures contracts for BTC and ETH. The fee model resembles BitMEX and is based on the maker/taker model.
Furthermore, it has features like margin and advanced trading charts to help you formulate your TA strategies. The margin requirements are low, and the leverage of 100x is easily provided for both ETH & BTC.
Note: Derbit futures are settled in BTC.
Want something that’s settled and played in cash like USD or EUR, check out eToro.
On eToro, you can long and short Bitcoin and many other cryptocurrencies. It is a kind of perpetual futures contract only that eToro provides to crypto traders.
The fees are a bit more, and the margin requirements are quite relaxed, and you have the option of doing everything in cash instead of cumbersome cryptocurrencies.
This option is especially for those who know what they are doing, and their sole objective is to play on the price movements.
#6. CBOE Futures
CBOE used to offer Bitcoin futures contracts, and it started in 2017. But as of now, in March 2019, they have suspended this service till further notice.
What Is Bitcoin Futures & Derivatives Trading?
Futures aren’t a new concept in crypto.
Futures contracts have existed since the 17th century, and it is just that in today’s traditional financial world they are quite obviously used as a hedge against a change in the price of any commodity
Ridding on the same borrowed concept, we now have Bitcoin and crypto futures contracts in the cryptosphere. Had it been not the case yet, it would have been a surprise because a decade has already past since the birth of Bitcoin.
For the uninitiated,
Futures contracts are financial, legal agreements between two parties who want to bet or speculate on the future price of a particular commodity.
The parties involved usually deal in futures contracts to either speculate or hedge against the future price of the commodity in question.
Dealing in futures contract means, the parties involved have agreed to settle the contract either by buying or selling the underlying commodity in question at an agreed date and time in the future. Or either by cash-settling their positions as per the agreed time and price. (more on this later)
This is mostly referred to as going long or short, I will get back to this soon with more details but similarly, any two parties who have agreed to bet on Bitcoin’s future price, deal in Bitcoin futures contracts on specialized exchanges.
Also, remember these contracts can be cash-settled or physically settled by the actual delivery of the underlying commodity in question.
So where the parties involved aren’t interested in the underlying asset’s delivery, they deal in cash-settled futures contracts whereas parties interested in actual delivery deals in physically settled contracts.
In both the case, the parties are just interested in playing on the price movements to hedge against the potential loss that might happen when they want to buy or sell the commodity/asset under question.
Let’s see this with an example:
A jet company always needs fuel to fly its Airplanes, and it evident that to keep its margins high, it would not want fuel prices to go over the roof. Also, there is only so much inventory one can keep when it comes to fuel.
Right now, the jet fuel is trading at $50 per Barrel, and the jet company has its inventory full for the next three months. But in these three months, it is anticipating a rise of $10 per Barrel.
In that case, the jet company can go long on the fuel and buy long futures contracts of the fuel. This will allow the company to lock in the prices now, and it will be obligated to purchase fuel at $50 in the future at a specific date.
Let say the company buys futures contracts at $50 per Barrel, and now, after three months, the price is $60 per Barrel. In this scenario, the company is obligated to buy the fuel, and the price will be $50.
Now, the question is who provides the fuel at $50 when the market price is $60.
Well, the party on the other side who will be supplying the fuel to the jet company is the party who went short with futures contracts anticipating fuel prices to go below $50 in 3 months.
But now, since its prediction was long and it has the short contracts, it is legally obligated to deliver the oil at the agreed price in the futures contract.
How Do Bitcoin Futures/Derivatives Work?
Bitcoin futures work on the same principles, and such futures contracts for BTC can be bought/sold on Bitcoin futures contract exchanges.
Furthermore, these contracts can be cash-settled, or Bitcoin settled.
But in any case, one can hedge against a change in the price of the BTC.
Let’s say; you already own 1 BTC, which you have bought at $10,000. Now, as the market moves up and down, your valuation of the BTC also moves up and down accordingly.
But you wouldn’t want that; you would wish to hedge against the price at which you bought.
Enter Bitcoin futures contracts for this!
The owner of the BTC buys short Bitcoin futures contracts anticipating a fall in the price of Bitcoin after a month. He buys this contract for $10,000.
Now, after a month, BTC is trading at $8000, but because the owner has a futures contract, he will have the legal right to sell the contract for $10,000 despite the price being $8000.
This way, he profited $2000 as well as hedged his position.
When Did (do) Bitcoin Futures Start Trading?
Bitcoin futures opened for trading on the CBOE Futures Exchange, LLC (CFE) on December 10, 2017, and later around the same time, CME exchange, which is the biggest futures exchange in the world, also introduced Bitcoin futures.
There are critical differences between both the exchanges and the BTC futures product they offer, which I think are beyond the scope of this article.
In any case, this was one of the most significant milestones Bitcoin achieved since its launch of 2008 in the traditional financial industry. Update: As of now, CBOE doesn’t trade Bitcoin futures.
How & Where To Trade (Buy) Bitcoin Futures Contract On Exchange
Cryptocurrency futures exchanges shouldn’t surprise anyone because this was expected.
Anything which is valued internationally must have a futures exchange and futures product for risk management. There couldn’t have been a better scenario for Bitcoin; I feel so.
Also, Bitcoin’s benefit and recognition in futures markets even opened the doors for other cryptocurrencies like ETH, XRP, LTC, ADA, etc. to be traded in the futures markets.
In any case, expect many more financial products to emerge around Bitcoin and other cryptocurrencies as they gain recognition because I feel this is just the start.
- Best Bitcoin & Crypto Futures Derivatives Exchange