Cboe Global Markets (CBOE) announced today that the Cboe Futures Exchange (CFE) has filed a product certification with the Commodity Futures Trading Commission (CFTC) to offer bitcoin futures trading. The product certification is subject to regulatory review. The impending launch date for Cboe bitcoin futures, which will trade on CFE under the ticker symbol 'XBT', will be announced shortly.
Conceptually, forwards or futures contracts have existed since the time of the Babylonian empire. Ancient Greeks managed price volatility for olive oil with an early incarnation of a futures contract. More contemporaneously (2004), CFE introduced VIX futures which provides a pure play on implied volatility and may be an effective way to hedge equity portfolio risk. Thirteen years later, "volatility" is considered an asset class.
Bitcoin futures will blend an age old idea with a far more recent concept, that of a "cryptocurrency". The CFE brings together buyers and sellers in a highly regulated environment which promotes participation, transparency, competition, and efficient price discovery.
Futures markets traditionally offer far greater liquidity than the spot or cash market. Futures markets also do not discriminate directionally. In other words, capital requirements (margins) for long and short exposure are identical. Furthermore, futures markets are leveraged which can improve capital efficiencies. However, leverage in inappropriate for some investors and the risk associated with it must be understood.
As mentioned, bitcoin futures will trade under the symbol XBT and each contract is equal to one bitcoin. The contract size is equal to a single bitcoin which allows for easy hedging of bitcoin positions.
The creation of bitcoin futures was in response to demand from sophisticated, professional customers. Cboe teamed up with Gemini Trust Company LLC, which is a digital asset exchange and custodian which was found in 2014. Cboe was attracted to Gemini Trust as a partner in this venture because Gemini is subject to fiduciary obligations, capital reserve requirements, and banking compliance standards of the New York State Department of Financial Services.
As noted the underlying ticker will be XBT and the ticker to see the contract settlement values is XBTS. The contract multiplier will be 1 so if a contract is trading at parity with bitcoin it will be worth about $9000 based on current pricing. The minimum tick for a directional, non-spread trade is 10 points or $10. A spread trade will have a much smaller tick of 0.01 bitcoin or $0.01.
Several expirations may be listed. Standard, or monthly, contracts may be listed to expire for three continuous months and farther out for months on the March expiration cycle (Mar, Jun, Sep, Dec). There may also be up to four serial weekly expirations. Standard (think monthly) contracts will expire on the 2nd business day before the third Friday of the month which typically will be a Wednesday.
Trading hours run from Sunday night at 5:00 pm to Friday afternoon at 3:15 pm. Specifically, the extended trading hours (ETH) session starts Sunday at 5:00 pm and ends Monday at 8:30 am with the ETH sessions for the rest of the week (Tuesday – Friday) consisting of opening at 3:30 pm the day before and ending at 8:30 am. Regular trading hours are Monday – Friday from 8:30 am to 3:15 pm, just like the VIX futures. All these time periods are Chicago time.
More info about Cboe Bitcoin Futures can be found at www.cfe.cboe.com