Now that bitcoin futures have finally been created by the Cboe, what is the best way to buy XBT bitcoin futures? For starters, XBT bitcoin futures will function just like any other index or commodity future, but they are likely to be a lot more volatile due to the wild price swings of bitcoin.
This is music to die-hard trader’s ears. More volatility and price swings = more opportunity to profit amid the chaos. Here are some key points to get you started.
- XBT bitcoin futures will track the price of bitcoin
- 1 XBT futures contract = 1 bitcoin
- XBT tick size = 10.00 and tick value = $10.00
- Use TradeStation to buy XBT futures for $1.25 per contract
How to Buy XBT Futures
As noted in our recent posts, there are only a few brokers offering XBT bitcoin futures to their clients.
Currently, the list consists of: TD Ameritrade, Ally Invest, TradeStation, and Interactive Brokers.
The first thing you will need to buy XBT futures is a futures trading account.
Although you can open an account at TD Ameritrade, their per-contract futures pricing is absolutely insane. At $2.25 per contract, commissions will quickly eat into your profits or exacerbate your losses.
Why You Need to Use TradeStation to Buy XBT Futures
TradeStation recently underwent a large rebranding effort and is one of the fastest growing online brokerage firms, especially for younger traders. Why is this important? Because TradeStation slashed their maintenance fees, software fees, data fees, and lowered their pricing for futures, options, and stocks.
Futures trading with TradeStation starts at $1.25 per contract and goes as low as $0.25 for highly active traders. And since TradeStation is one of the few brokers offering XBT bitcoin futures trading, they are unequivocally the best choice. You’ll get excellent customer service just like TD Ameritrade, but you’ll save at least $2.00 on every single trade. If you trade 10 times a day, that’s a guarantee of $20 in free savings.
-$1.50 per Futures Contract
-No Software Fees
-Free Real-Time Futures Data
-Free Professional Trading Platform
Even at TradeStation’s starting futures rate, you’ll automatically save 40% compared to TD Ameritrade! There is simply no reason to overpay for every trade with TD or Interactive Brokers. Interactive Brokers decided to differentiate themselves from all of the other bitcoin futures brokers and charge a whopping $5.00 per contract for all XBT bitcoin futures trades – totally ridiculous.
How XBT Bitcoin Futures Work
One of the biggest misconceptions about futures is that they are a complicated investment product to trade.
Nothing could be further form the truth. Sure, futures are deemed risky due to the inherent leverage and low margin requirements, but they are not complicated.
For bitcoin, one XBT futures contract equals one bitcoin. It’s that simple.
How to Calculate Your Position P/L for XBT Futures
As stated in the XBT contract specifications on the Cboe website, the minimum price interval for XBT bitcoin futures is $10.00.
This means the moment you buy a single XBT futures contract, your profit/loss will move either up or down in increments of $10.00.
XBT has a tick size of 10.00 and a tick value of $10.00. Therefore, if you buy XBT at $15,900 it will either move to $15,910 or $15,890.
XBT futures will NOT move in $1.00 increments like other futures contracts (think crude oil) or $0.01 increments like stocks.
An XBT Trading Example
Say we buy 2 XBT bitcoin futures contracts at $15,900. Suppose bitcoin has a nice rally and XBT futures are trading at $16,500. What will our profit be? (At the time this article was written XBT futures moved almost double this amount in a few minutes).
Since we are long two contracts, and each contract moves in $10.00 increments, our position is due to increase/decrease $20.00 for every new price move up or down in XBT.
Since XBT moved up $600, our profit would be a hefty $1,200 (600 points x $10/point x 2 contracts). Not bad.
XBT Futures Trading Hours
Bitcoin trades virtually all the time, and this is why futures are so great. Unlike stocks, futures trade all throughout the night and open for trading on Sunday evening. The only day the exchanges are closed is on Saturday.
|Type of Trading Hours||Monday||Tuesday – Friday|
|Extended||5:00 p.m. (Sunday) to 8:30 a.m.||3:30 p.m. (previous day) to 8:30 a.m.|
|Regular||8:30 a.m. to 3:15 p.m.||8:30 a.m. to 3:15 p.m.|
The trading hours for an expiring XBT futures contract end at 2:45 p.m. on its Final Settlement Date.
Why XBT Bitcoin Futures are Better
The main difference between trading XBT bitcoin futures and trading actual bitcoin is regulation. Bitcoin futures, and all brokers who offer them in the United States are heavily regulated.
This is important for two reasons:
All money you deposit with a FINRA regulated broker in the US, like Ally Invest, TradeStation, TD Ameritrade, etc., is insured up to $250,000. This means that you won’t lose your initial deposit if your broker goes under.
More importantly, futures exchanges are both highly liquid and highly regulated and not easily manipulated. Trading bitcoin directly through Coinbase or another exchange is not regulated at all and subject to a lot of potential spoofing, i.e. false prices.
Hopefully this guide helps you understand how to buy XBT bitcoin futures. At The Options Bro, we view the creation of bitcoin futures as a step in the right direction towards mass-adoption of cryptocurrency and blockchain technology. It’s only a matter of time before options on XBT futures are introduced – and believe us, we’re looking forward to that more than anyone.