Bitcoin is a fascinating financial instrument, and the cryptocurrency world has forever changed with the introduction of bitcoin futures (trading under the ticker symbol XBT). If you’re wondering how you can short bitcoin XBT futures, which means bet against the price of bitcoin, read this quick guide.
- XBT bitcoin futures track the price of bitcoin
- 1 XBT futures contract = 1 bitcoin
- XBT tick size = 10.00 and tick value = $10.00
- XBT futures can easily be sold short
- Unlike stocks, futures don’t need to be borrowed before they’re sold short
- tastyworks is one of the few brokers letting their clients trade bitcoin futures
How to Short Bitcoin XBT Futures
If you’ve read our previous tutorials about trading bitcoin futures, you’ll know that there are only a couple of online brokers offering bitcoin futures trading to their clients.
In order to trade futures, you need to open up an account with an online broker, not a cryptocurrency exchange or wallet.
Currently, TD Ameritrade, Ally Invest, tastyworks, and Interactive Brokers are allowing clients to short and buy bitcoin futures which trade with the ticker symbol “XBT”.
Why You Need to Use tastyworks to Short XBT bitcoin Futures
Although Ally Invest is a phenomenal online broker for stocks and options, all futures trading is done through MB Trading, which Ally recently acquired. Interactive Brokers is totally out of the question for bitcoin futures trading, because they charge a whopping $5 fee for all bitcoin futures contracts in addition to their standard futures commissions.
This leaves us with tastyworks and TD Ameritrade – two very fine brokers. However, TD Ameritrade charges a whopping $2.25 per futures contract. tastyworks only charges $1.25 per contract with even bigger discounts for active futures traders. That’s a minimum of a dollar in savings per contract.
tastyworks offers great customer service just like TD Ameritrade, but you’ll save at least $2.00 on every round-trip futures trade with tastyworks. If you trade 10 times in one day, which is really easy to do with futures because there is no $25,000 pattern day-trader requirement from FINRA like there is for stocks, you’ll save $20 just by going with tastyworks – it’s a no brainer.
MB Trading XBT Bitcoin Futures Margin Requirements
One of the reasons TradeStation is the best choice for bitcoin futures trading is their low margin requirements to go long or short.
Currently, their margin requirements for XBT futures are as follows:
|CFE Bitcoin Futures||XBT||66% of Gemini 4:00 p.m. Bitcoin Auction Price ($XBTS.X)||60% of Gemini 4:00 p.m. Bitcoin Auction Price ($XBTS.X)|
Because TradeStation only required a 60% maintenance margin on XBT futures, this means only $9,900 is required to trade a contract that is worth $16,000. TradeStation offers the best initial and maintenance margin requirements for bitcoin futures we have seen yet.
The current margin rate to short an XBT futures contract at Interactive Brokers is 250%, or $40,000! That’s insane!
How XBT Bitcoin Futures Work
A big misconception about futures is that they are complicated. They’re not. In fact, futures are probably one of the most simple financial products because all orders route to one central exchange.
One XBT bitcoin futures contract equals one bitcoin. So if you sell short an XBT future (i.e. sell to open) you’ll effectively be selling one bitcoin. It’s simple and awesome.
However, futures are deemed more risky than stocks because of the low margin requirements to initiate and maintain positions. XBT futures are currently trading around $16,500 but this doesn’t mean you need $16,500 to open a short position.
Low Margin Requirements
The margin requirements (the amount of money needed to open an maintain a position) are always low for futures relative to the value of the contract.
Simply put, the beauty of futures trading is that only a fraction of the notional value of the futures contract is required to initiate a trade. For XBT futures, only 30% of the value of the contract is required to initiate a long or short position.
This means it will only take around $4,000 to trade a contract worth $16,500. These margin limits are set by the exchange (the Cboe Futures Exchange) and are then passed on to the brokers and clearing firms. Additionally, unlike stocks, there are no hard-to-borrow fees associated with shorting futures.
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 short 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 short XBT at $15,900 it will either move to $15,910 or $15,890. Either way, your profit/loss will be $10.00.
It is important to note that XBT futures do 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 short 2 XBT bitcoin futures contracts at $15,900. Suppose bitcoin has a declines modestly and XBT futures are now trading $15,500. What will our profit be? (At the time this article was written XBT futures moved almost double this amount to the upside in just a few minutes).
Since we are net short 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 down $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 such a great compliment to the cryptocurrency trading world. Unlike stocks, futures trade all throughout the night. The only day futures exchanges are closed is 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 Shorting Bitcoin XBT Futures is Better
A while back, the only way to get short bitcoin, without dealing with unregulated exchanges, was to short the Grayscale Bitcoin Investment Trust known as GBTC.
For traders who don’t want to trade futures, trading GBTC is still a fine option. However, bitcoin XBT futures offer a much cleaner, faster, cheaper, and more convenient way to short bitcoin.
Bitcoin futures are here to stay. Whether it marks the end of mind-blowing BTC rallies or just the beginning, we have no clue. One thing we do know, however, is that bitcoin XBT futures will allow more participants to access the cryptocurrency marketplace and express their market opinions.
At The Options Bro, we view the arrival of bitcoin futures trading as a step in the right direction towards mass-adoption of cryptocurrencies and the blockchain technology – we are as excited as ever.
Bitcoin XBT futures are perhaps the easiest way to trade bitcoin and avoid all of the headaches associated with unregulated and fee-heavy cryptocurrency exchanges like Coinbase.