Forexlive on BTC futures:
#1 – When it starts
The CBOE launches it on Sunday at 5 pm Chicago time (2300 GMT). The CME product will start trading a week later. Both markets will be closed on the weekend, which creates a risk of massive gaps with Bitcoin often moving more than 20% in a day.
#2 – The contract size
Each CBOE contract is for one Bitcoin. That differs from the CME where it’s 5 Bitcoin. The smaller CBOE contract size is attractive for smaller investors. The minimum movements are 0.01 points, which is equal to $10.
#3 – Market orders are banned
This is good and bad. It’s bad because you can’t just hit the ‘sell’ button and get out. It’s good because you don’t have to worry about slippage and that will minimize some of complaints, scaling and surprises. Another caveat is that all orders must be ‘exposed’ for 5 seconds, which is an effort to curb spoofing.
#4 – It’s cash settled
No Bitcoin will change hand at the CBOE. It’s a cash-settled market which means the buyer and seller essentially are on the hook for the difference between the sale price and the cash price.
#5 – Price discovery
This is the big one. The CME is using a price index of various exchanges for its pricing and settlement. For settlement at the CBOE, it will be based on auction price for Bitcoin at the 4 pm ET auction at the Gemini Exchange on settlement day. If that fails, there are contingencies, with the primary one being the Winklevoss Blended Bitcoin Index.
#6 – Trading halts
This could be a major factor if any trouble hits. Futures will be halted for 2 minutes on any move of 20% or more. They will be halted for 5 minutes if price moves exceed 20%. This is a major and perhaps killer advantage of the CME product, which can’t trade more than 20% outside the open
#7 – Margin
Initial margin will be 44% of the current daily settlement price and maintenance margin will be 40%; That’s higher than the 35% at the CME.
And via The Times:
A world expert in financial options has warned that those hoping to use the creation of contracts allowing investors to bet against the spiralling price of bitcoin were doomed to lose money.
Nassim Nicholas Taleb, an authority on derivative markets, said that there was “no way to short the bitcoin ‘bubble’ ” properly.
The American-Lebanese academic and hedge fund manager was tweeting to his more-than-200,000 followers hours before trading was due to go live last night in the first futures based on the virtual currency. He said that the opening of trading on the Chicago Board Options Exchange was unlikely to halt a rise that has led the cryptocurrency’s price to nearly treble in a month to about $15,000, briefly approaching $20,000. The rise in its value has surpassed “tulip mania” in the 17th century, leading some suggest that it is set to create the largest financial bubble ever.
Allowing bitcoin futures to trade on regulated exchanges is the first step to placing it in the financial mainstream and part of the recent rise in the price has been put down to expectations that big institutional investors will begin buying. Futures trading means that instead of buying “actual” bitcoins to profit from a rise in their value, an investor can purchase contracts that would profit from a drop in the market price. Such products are common in all other markets, such as currencies, shares and oil.
Mr Taleb warned that the development of a futures market may not stall bitcoin’s rise in price. “Futures that don’t have deliverables require a very, very deep market. Otherwise someone long in the future can push prices higher at settlement time with impunity,” he said.
Totally agree. The problem with this pyramid bubble is that it is explicitly designed to operate outside the existing financial infrastructure. There is no way of knowing what it is worth or when it will crash because that will depend upon when the threatened infrastructure decides that it is too big to succeed and crushes it.
Shorting it is as crazy as buying it.
