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Cryptocurrency
by Michael on December 6, 2017

CBOE vs CME in Bitcoin futures trading, who will be the first?

There is a change in the air. Two of the largest derivative exchanges have announced plans to list Bitcoin futures. CBOE Futures Exchange announced that it will start trading Bitcoin futures on the 10th of Dec. On Friday the 1st December, CME announced its intention to launch futures contract on the 18th of December. Bitcoin price in 2017 has topped the $11,000 mark and this has definitely caught the attention of these two players.

In the last few months, Bitcoin has enjoyed tremendous growth. Its price has experienced several sharp drops and rises. While the rise and drops in price will mean a good thing to one investor, it is definitely bad for another. However, these movements in the price of Bitcoin indicate the lack of confidence in its system. The other factors making the price unstable include its fragile reputation and its severe reaction to bad news. These wild fluctuations have led traders wanting to diversify their portfolios as regards Bitcoin.

Who are CBOE and CME?

Chicago Board Options Exchange (CBOE) is one of the oldest option exchanges in the world. It offers options on thousands of company stocks, stock indices, and ETFs. Chicago Mercantile Exchange (CME) on the other hand is biggest derivatives exchange in the market and probably the oldest in the market. It is indeed a leading player in the futures market. It is, therefore, easy to see why the entrance of these two major players in the Bitcoin futures market is making the news.

While CBOE is seemingly the winner in the Bitcoin futures market race with CME, the overall winner is yet to be seen. Mainstream financial cash markets have been avoiding Bitcoin because it defies the traditionally accepted ways that currencies are produced and controlled. Because of its immense growth, interest by investors and potential, CBOE, and CME have seen it fit to jump in.

What does it mean when CBOE and CME enter the Bitcoin futures market?

People are generally excited by the announcement from CBOE and CME. However, if you are a Bitcoin trader or owner, you should learn first how the futures market works before jumping in. In the Bitcoin cash market, all players are happy when the price going up. There has been a sharp drop in prices but this can be attributed to the fact that some players are taking their profits off the table. In the futures market, there are players who will be hoping for the Bitcoin price to go up and others who will want it to go down and both will be betting on this. In the Bitcoin futures trading, there will be a lot of profit when the underlying asset’s (Bitcoin) price goes up or down.

Trading the futures on CBOE and CME

The Bitcoin futures will be under a different class because no other Cryptocurrency has ever been listed in either of these exchanges. At CBOE, this currency future will be traded under the ticker symbol ‘XBT’. On Monday, CBOE said that the Bitcoin futures contract will be cash-settled based on the auction price from the Cryptocurrency exchange Gemini.

CME’s Bitcoin futures contract which will be launched on Dec 18th will be available for trading on CME Global electronic trading platform. On 1st December 2017, Commodity Futures Trading Commission gave both CME and CBOE approval to list Bitcoin futures. This is after the bourses presented their proposals. The Bitcoin cash market is mostly unregulated. Because of this, both players were tasked with the role of monitoring flash rallies, manipulation, trading outages and other structural issues that might crop up.

The future of the Bitcoin futures trading

U.S Securities and Exchanges Commission hasn’t allowed ETFs based on Bitcoin on any exchange. CBOE and CME are planning on showing how this market works and at the same time prove that their oversight role in this market will be effective. Once this happens, CBOE plans on reapplying with the SEC to launch Bitcoin ETF. CME and CBOE plan to have intraday price limits which will guard against excessive volatility. The initial margin limits will be 30% for CBOE and 35% for CME. Last week,

Nasdaq Inc, another major exchange announced plans to list Bitcoin futures contracts in 2018.

By Michael

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