The CME Group is set to launch its highly anticipated bitcoin futures trading on Sunday evening, one week after the Cboe's own bitcoin futures debut. Investors should be aware of key differences between the two contracts.
While both contracts are cash settled — you cannot take delivery of your bitcoin — the contract size of the Cboe's contract is one bitcoin, while the CME's is five. This is important to note, as your exposure on the CME is five times greater than on the Cboe.
Think about it this way: Let's say bitcoin is trading at $17,500. The Cboe's contract would have a notional value of that $17,500, while the CME's would be five times greater, at $87,500.
This is essential for calculating the margin requirements, or the amount of money a trader would need to post to trade bitcoin.
Furthermore, the Cboe has an initial margin of 44 percent of the notional value. In other words, someone would theoretically need $7,700 to initiate a trade. Meanwhile, the CME will have an initial margin of 47 percent of the notional value of $87,500. Therefore, you would need $41,125.
When choosing which exchange is right for you, you may want to ask yourself a few questions. First, do you want to dollar-cost average, buy one bitcoin now and add to the position later, or do you want to commit to five bitcoins at once?
If you currently have bitcoin and would want to hedge, you can sell bitcoin on the futures exchanges for a fast and simple way to lock in prices. So, if you have three bitcoin you might want to use the Cboe's one bitcoin contract. Or, if you have 50 bitcoins, the CME's five bitcoin-contract might be more efficient.
Whichever exchange you choose to trade, this is an exciting time to be involved in the futures markets with the new digital currency evolution.