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How to Trade Bitcoin Futures

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Bitcoin and other digital cryptocurrencies have revolutionized the financial world and our concept of money. Since December 10, 2017, bitcoin futures have been available to trade on the Chicago Board Options Exchange (CBOE).

A few days later, on December 17, Bitcoin hit its all-time highest price of $19,783.06. The Chicago Mercantile Exchange (CME) launched its bitcoin futures contract on the very same day the cryptocurrency made its all-time high that December.

On March 18, 2019, the CBOE announced it would not list any more bitcoin futures contracts. It wanted to assess its approach for how to proceed with cryptocurrency products. The phasing out of the bitcoin futures contract on the CBOE was largely due to the higher volume on the CME, which consistently beat out the volume on the CBOE’s Bitcoin contract.

The CME self-certified its bitcoin futures contract with the Commodity Trading Futures Commission (CFTC) effective on December 18, 2017. If you want to learn how to trade bitcoin futures, you’ll likely be trading CME futures regulated by the CFTC.

Commissions
$0.09 per micro contract
Account Minimum
$400
Get started securely through NinjaTrader’s website
Commissions
$0.09 per micro contract
Account Minimum
$400
1 Minute Review

NinjaTrader is a powerful derivatives trading platform specializing in futures, forex and options. The platform has a number of unique trading tools. A free version does exist without the extra goodies provided by Trader + and OrderFlow + but users can still break down charts, backtest strategies and trade without upfront payment. NinjaTrader hosts its own brokerage services but users have their choice of several different brokerage options. Accounts have minimums depending on the securities traded and commissions vary depending on the version of the platform. Advanced derivatives traders will have endless fun with the platform’s mighty array of tools and analyzers.

The free version, which is included with all brokerage accounts is a great starting platform for new traders without the financial commitment. As you grow in your trading and are ready for more tools and functionality, you can add more complexity.

Best For
  • Futures Traders
  • Traders looking for 24/7 action
  • Advanced Traders
Pros
  • Powerful analysis tools
  • Free download and simulated trading
  • Open source trading apps to enhance experience
Cons
  • Can only trade derivatives like futures and options
Commissions
$0
Account Minimum
$0
Get started securely through TradeStation’s website
Commissions
$0
Account Minimum
$0
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Commissions
$0 $6.95 for OTC Stocks
Account Minimum
$0
Get started securely through TD Ameritrade’s website
Commissions
$0 $6.95 for OTC Stocks
Account Minimum
$0
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates

What to Know Before You Start Trading Bitcoin Futures

The first thing to know about how to trade bitcoin futures is that no bitcoins are involved. In other words, since the futures are contracts that settle financially in cash, no bitcoin actually changes hands.

As in other futures contracts, you speculate on the price of bitcoin and not buying or selling the underlying cryptocurrency asset itself.

No cryptocurrency trading platform or wallet is needed. This is because futures contracts either settle financially on the delivery date or are offset by traders reversing out of their positions as the delivery date approaches.

If the buyer or seller of a bitcoin futures contract holds the position and shows a profit on the delivery date, then the difference between the purchase price and the settlement price is paid out to the holder of the futures contract.

The CME bitcoin futures contract (BTC) specifications are for 5 bitcoin as defined by the CME Crypto Facilities Ltd. (CF) Bitcoin Reference Rate (BRR). This aggregates activity in Bitcoin trading across major bitcoin spot exchanges between 3 p.m. and 4 p.m. GMT.

The minimum fluctuation for a futures contract is $25 per contract and $5 for calendar spreads.

Trading times for bitcoin futures, which can be found on the CME, the CME Globex and the CME ClearPort trading platforms are from 5 p.m. until 4 p.m. CST Sunday through Friday. An hour of inactivity between 4 p.m. and 5 p.m. gives a clear opening and closing quote for the contracts, unlike bitcoin itself, which trades 24/7.  

The listing cycle for the bitcoin futures contract is the March quarterly cycle, consisting of March, June, September and December, plus the nearest two serial months not in the March quarterly cycle.

Serial months are months in which a futures trade can be made that isn’t in the quarterly cycle. The last day of trading is the last Friday of the contract month. Trading in futures set to expire terminates at 4 p.m. GMT on the last day of trading.

How to trade bitcoin futures is just as important as where you trade, so make sure you pick the right broker. A reputable futures broker is usually a member of the National Futures Association (NFA) and submit to regulatory oversight by the CFTC.

To start trading futures, you must first open an account with a registered futures broker where your account can be maintained and your trades guaranteed. Futures brokers are generally known as either a futures commission merchants (FCMs) or introducing brokers (IBs).

Step 1: Learn How Futures Trade

Futures contracts trade differently than stocks, funds and fixed income instruments, so if you’ve never traded futures, learn how they trade and the requirements for traders. For starters, bitcoin futures have very high margin requirements.

The CME’s maintenance margin requirement for bitcoin futures is 37% of the price of the futures contract and initial margin for a hedger is 100% of the maintenance margin. Also, the margin for speculators is 110% of the maintenance margin. While margin offsets can be obtained with other CME financial products, the exchange does not offer them initially to new traders.

Keep in mind that the margin requirements mentioned above are the CMEs; an FCM may have higher margin requirements depending on the market and the trader. Other considerations consist of how closely the futures prices track the spot price, the liquidity in the market and how other traders and market makers are positioned.

Step 2: Build a Trade Plan

Developing and implementing a trading plan could be the most important thing you do to further your trading career. Base your trading plan on careful analysis of the market you plan to trade in.

As you develop your trading plan, consider what your objectives are for each trade, the amount of risk you plan to take on a trade and how much risk is acceptable for each trade.

Other factors include the technical and fundamental analysis indicators you plan to use to generate buy and sell signals, the types of orders you plan to use and the way you plan to monitor the market and price developments.

Money management and position sizing must also be considered when trading in the volatile bitcoin futures market. If you have difficulty developing your own plan, you can either follow what other traders do or use someone else’s trading plan.

Step 3: Find a Broker

An experienced and professional firm as your futures broker can make a significant difference in your overall long-term success. Try several brokers to find the one that suits your needs.

Here are Benzinga’s picks for the best future brokers for bitcoin futures:

Account Minimum
100 of your selected base currency
Pairs Offered
80+
Minimum Trade Size
$1,000
Spread
0.2 pips – 1.0 pips
Commisions
$0 – Variable starting at $60 per million traded depending on account
Best For
  • MetaTrader 4 users
  • Beginner forex traders
  • Active forex traders

FOREX.com

FOREX.com does not execute futures trades directly. Trades go through its wholly-owned subsidiary, FuturesOnline, a member of the NFA which has full oversight from the CFTC as an FCM.

Trading futures in the account requires a minimum balance of $500. FOREX.com recommends that you open your account with $2,500 and that you have enough deposited to cover any margin requirements.

A $15 per month inactivity fee applies if the account has been inactive for a period of 3 months. FuturesOnline offers a demo account with $50,000 virtual dollars so you can try its trading platform and test your strategies free of charge.

FuturesOnline’s commissions are $1.29 per futures or options on futures contract executed electronically on all exchanges. Trades made in a trading pit cost $2.45, also for all exchanges. Phone orders cost $25 per order plus commissions.  

FuturesOnline’s trading platform is OEC Trader. It offers an intuitive interface and features streaming quotes, technical analysis tools and full order desk communication as well as a mobile option.

You can also run and backtest your strategies by using the company’s proprietary wizard, C# or EasyLanguage. Alerts are displayed when technical conditions are met, and you can sell your custom indicators in the broker’s store.  Note that FOREX.com only offers bitcoin only in FCA and CIMa regulated regions.

Commissions
$0 $6.95 for OTC Stocks
Account Minimum
$0
Best For
  • Novice investors
  • Retirement savers
  • Day traders

TD Ameritrade

TD Ameritrade offers trading in bitcoin futures through its recently acquired thinkorswim subsidiary. TD Ameritrade has oversight from the CFTC, SEC and FINRA, and the broker is a designated self-regulatory organization registered with the NFA.

While no minimum deposit amount is required to open an account, a $2,000 deposit is required to qualify for options and margin privileges despite any promotional offers.

The thinkorswim trading platform offers traders and investors access to equities, options, ETFs, forex, futures and futures options. ThinkorSwim also features the TDA Mobile Trader, available only for iOS. The platform can be customized and, if you meet the requirements, you may be eligible to use options and futures in your Individual Retirement Account (IRA).

In addition to its paperMoney free demo account, TD Ameritrade offers several bonuses for new traders and extensive educational resources. The company is also in the process of creating a regulated exchange for spot and futures contracts on cryptocurrencies through a partnership with ErisX.

Commissions
$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available
Account Minimum
$0
Best For
  • Access to foreign markets
  • Detailed mobile app that makes trading simple
  • Wide range of available account types and tradable assets

Interactive Brokers

One of the best all-around brokers for everything from forex to fixed income, Interactive Brokers offers trading in bitcoin futures on the CME.

Interactive Brokers may be more expensive than other brokers, but it offers one of the best trading platforms and lowest margin rates in the business.

Commission for the CME contract of 5 bitcoins is $15.01 per contract. Margin requirements for bitcoin futures is an initial intraday amount of $16,562, with the same amount required for initial overnight positions plus a maintenance margin of $13,250.

Interactive Brokers’ Trader Workstation (TWS) desktop trading platform is one of the most highly-rated among experienced traders.

Step #4: Test Your System

Ideally, the broker you select should provide you with a virtual or demo account where you can test your trading plan and get a feel for trading in real time.

You really don’t know how to trade bitcoin futures until you put your plan to the test. Trading in a demo account or trading simulator allows you to practice without committing any funds and address any issues that may have arisen with your trading plan.

Once you’ve developed sufficient confidence in your methods, you can then fund your trading account and begin to trade. Making small trades at the beginning could save you a lot of money and stress. After you’ve built up your account with small trades, you can increase your position size with more confidence.  

A broker’s demo account will also give you insight into the broker’s services, which could help you in your final selection of a broker. If you have a trading plan, you can open several demo accounts and test your plan with different brokers.

Step #5: Go Live

Once you’ve selected a broker and have tested it in a demo account, add funds to your account and start trading bitcoin futures in a live account. Keep in mind that putting real money on the line may make a difference to the way you trade, so make sure you take that into consideration when you begin trading.

Trading futures may be more capital intensive and require significantly more money than trading spot currencies, so make sure you have enough trading capital to meet margin requirements.

Get Started Trading Bitcoin Futures

Trading futures is a speculative activity, so if you’re considering investing in cryptocurrencies, open an account with a cryptocurrency exchange and get a wallet to store your cryptos in. Investing in cryptocurrencies involves buying and holding for long-term gains, not trading for short term profits.

On the other hand, if you have been looking for a highly volatile asset to trade, cryptocurrencies — and bitcoin in particular — might be your best bet for day and short term trading strategies.

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