The Chicago Mercantile Exchange (CME) recently launched its new Micro Bitcoin futures product for trading on May 3rd, 2021 and it’s an exciting time for futures traders, especially if you’ve been sitting on the sidelines looking for a chance to get some exposure to Bitcoin!
While interest in the crypto markets has exploded in the last 5 years, in order to trade spot Bitcoin, traders faced a number of challenges which include setting up digital wallets with online platforms, account security concerns, and tax confusion.
In today’s post, we will discuss the details of this new product, some of the benefits it offers to trade the “spot” Bitcoin market, and how you can get started!
What are Micro Bitcoin Futures?
The Micro Bitcoin futures (symbol: MBT) can be considered the little brother of the Bitcoin futures (symbol: BTC), which were introduced by the CME back in 2017!
The micro Bitcoin futures contract trade at 1/10th the size of one bitcoin and 1/50th the size of the larger Bitcoin futures contract, which makes them very accessible for retail traders around the world.
These contracts are cash-settled with a listing cycle of six consecutive monthly contracts including the nearest two December contracts.
While spot crypto trades 24/7, the micro bitcoin futures contracts trade similar hours to CME equity products meaning that this market will be open Sunday – Friday 6:00 p.m. – 5:00 p.m. ET with a 60-minute break each day beginning at 5:00 p.m. ET.
What are the Benefits of Micro Bitcoin Futures?
- Regulated Market – A majority of crypto exchanges available are not regulated which adds risks for traders as it relates to the security of their capital, these exchanges are also more prone to being hacked
- Price Discovery & Transparency – A huge benefit of a centralized marketplace is that all market participants will see the same prices and quotes, whereas, because Bitcoin is decentralized, you will often see different prices quoted across different crypto exchanges.
- Capital Efficiency – Micro Bitcoin futures provide exposure to Bitcoin at a fraction of the cost with a reduced financial commitment.
Flexible Risk Management – As we discussed earlier, these Micro Bitcoin contracts trade at 1/50th the size of the Bitcoin futures and 1/10th the size of spot Bitcoin which gives traders that opportunity to fine-tune their exposure.
How do the Micro Bitcoin Futures Work?
The Micro Bitcoin futures are based on the CME CF Bitcoin Reference Rate (BRR) and have a tick size of $5 – which simply represents the minimum increment of price fluctuation for this product.
It means that for every $5 that Bitcoin moves up or down, the Micro Bitcoin futures contract price will move 1 tick.
So for example, if the price of Bitcoin moves from $57,550.00 to $57,555.00, that represents a $5 increase in the price and this would represent 1 tick on the Micro Bitcoin contract.
To further break down this example, let’s say that Bitcoin moves $100 from $57,550 up to $57,650, how many ticks would that represent on the micro Bitcoin futures contract?
It would represent 20 ticks and to determine this, simply divide the $ value of the move ($100) by the tick size ($5).
So now that we understand the tick size, let’s take a quick look at the tick value of this contract!
The tick value of the micro Bitcoin futures contract is $0.50 per contract.
This means that every $5 fluctuation in the spot price of Bitcoin will result in +/- $0.50 per contract.
Let’s go through another example to help put this into perspective:
We get a short 1 contract at $58,800 with a stop loss above $59,350 and a profit target of around $56,600.
What would the total dollar loss look like if the stop loss is hit?
The first calculation we have to make is the price difference between the entry and stop loss level which is $550.
We know that the tick value is $5, so we divide 550/5 to get 110 ticks – so we are effectively risking 110 ticks on this trade.
Taking it one step further, to find out how much dollar exposure this trade represents we must multiply 110 ticks by the tick value ($0.50/contract) = $55 So we are risking $55 on this trade if our stop loss is hit.
What would the total dollar profit look like if the profit target is hit?
The first calculation we have to make is the price difference between the entry and take profit level which is $2200.
We know that the minimum tick value is $5, so we divide 2200/5 to get 440 ticks – so we are effectively looking to profit 440 ticks on this trade.
Taking it one step further, to find out how much potential dollar profit this trade represents we must multiply 440 ticks by the tick value ($0.50/contract) = $220
So we are looking to profit $220 on this trade if our profit target is hit!
Check out this YouTube video we put together on the Micro Bitcoin Futures for some more information:
How to Get Started with the Micro Bitcoin Futures?
The easiest way to start trading the Micro Bitcoin futures is to open a futures trading account with a broker that offers these contracts as part of their available markets.
You can find a list of firms that provide clearing and execution services for crypto futures here at cmegroup
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.