Bitcoin Futures Will Be Listed Listed in the Second Week of December
CME Group, the world’s largest futures exchange, will list a Bitcoin contract in the second week of December. CME is known for having strict price limits and trading halts in place for most of its listed products. This has spurred speculation among cryptocurrency traders that offering a Bitcoin contract will significantly lower the volatility and the frequency of the currency’s notorious flash crashes that occur on some of its less liquid online exchanges.
“I’m not trying to rein in the volatility of Bitcoin,” Terry Duffy, CEO of CME said. “But what I want to do is give it a place for other people to lay out that risk. Today you cannot short bitcoin. So there’s only one way it can go. You either buy it or sell it to somebody else. So you create a two-sided market, I think it’s always much more efficient.”
Asked about price fluctuations & trading halts, he did note that some would be in place in the case of serious price fluctuations. “I think that’s going to add a lot more structure of the marketplace,” he said.
Bitcoin futures will have a price limit of 20% above or below the prior settlement price and price fluctuation limits of 7% and 13% above and below that level. The contract will be cash-settled according to the CME CF Bitcoin Reference Rate (BRR), which tracks several bitcoin trading platforms.
Leo Melamed, the chairman of CME Group, said the purpose of creating bitcoin futures is to enable investors to short-sell bitcoins, making two-way bets possible and to attract more institutional investors. Melamed expressed confidence that the bitcoin will become another asset class in the not-so-distant future, like stocks and gold. “That’s a very important step in bitcoin’s history. We will regulate, make bitcoin not wild, nor wilder. We’ll tame it into a regular type instrument of trade with rules,” he said.
CME Group Announces Bitcoin Futures
The CME Group announced this morning that it plans to launch a tradeable Bitcoin futures contract in the fourth quarter of this year, pending approval by regulators. Bitcoin prices surged to all-time-highs after the news broke. The new futures contracts, if approved, will be cash-settled and based on the CME’s CF Bitcoin Reference Rate (BPR), which was launched in November of 2016.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” Terry Duffy, CME Group Chairman and CEO, said in a statement.
Is it the Heyday of Oil Trading?
The global oil industry includes the process of exploration, extraction, refining, transportation, and sale of petroleum products. Oil products account for a large portion of the world’s energy consumption. According to the Energy Information Administration, the world consumes over 30 billion barrels of oil per year, with the most developed nations being the largest consumers. The global oil industry as a whole represents the world’s largest industry in terms of a dollar value.
Because of this, it’s no surprise that oil is consistently one of the most talked about subjects in futures trading. If you’re one of the many traders that keeps a close eye on CNBC or Bloomberg throughout the day, you’re probably well aware that the oil market is covered more than any other commodity out there. Traders are attracted to oil not only because of its notorious price volatility, but also due the amount of supply/demand data released on a weekly basis. The amount of easily accessible data that the Energy Information Administration (EIA) and the American Petroleum Institute (API) releases throughout the week can keep even the most novice at-home trader up to date on all the most recent changes & developments in the oil complex.
The popularity of trading oil futures has grown wildly since its inception in 1984 on the NYMEX exchange. Our graphic below compares the average daily Volume & Open Interest in recent years.
If you’re interested in crude oil futures, or the energy complex as a whole, contact one of our knowledgeable market strategists: email@example.com.
Managed Futures: Then & Now
Futures trading (or what resembled it) can be traced back to as early as 1750 BC to Ancient Mesopotamia. One of the earliest written documentation of futures trading can be found in Aristotle’s ‘Politics’. He tells the story of Thales, a philosopher who develops “a financial device, which involves a principle of universal application”. He tried his hand at price forecasting and predicted that the olive harvest would be unusually good in the upcoming autumn. He drew contracts with local olive-press owners to deposit his money with them to guarantee him the exclusive use of their presses once the harvest was over. Thales haggled the owners to low prices because no one knew whether the yield would be ample or pathetic and therefore press owners were willing to hedge against the possible outcome of a low yield. When harvest season came around, demand for the use of these olive presses exceeded the supply, and he sold his contracts to use the presses at a much higher price than he has initially paid the press owners.
There’s many instances in history that resemble what a present-day futures contract looks like. The first “modern” organized futures exchange was formed in 1710 in Osaka, Japan as the Dojima Rice Exchange. It wouldn’t be until 1848 that the Chicago Board of Trade was formed. There, trading was initially done through forward contracts. The first standardized futures contracts weren’t introduced until 1865. Futures trading rapidly gained popularity, and by 1922, the federal government proposed & passed the first regulations for futures trading: the Grain Futures Act. The act was later replaced by the Commodity Exchange Act, and in 1974, the Commodity Futures Trading Commission was established under the Commodity Futures Trading Commission Act.
The new regulations led to the official recognition of a group of professional fund managers: Commodity Trading Advisors, or “CTAs”. Also known as managed futures, the funds can take both long & short positions in futures and options contracts in the global commodity, interest rate, equity, and currency markets. By the late 1970s, managed futures began to gain popularity with investors who sought to spend less time constantly monitoring markets, saw lackluster opportunities in the investment vehicles they knew well, or simply wanted to remove themselves from the emotional component of making their own trading decisions.
The managed futures industry has grown rapidly over the last 30 years, and is considered as being one of the fastest growing alternative investment strategies. The estimated total assets under management broke the $1 billion mark in 1985. It would go on to break $100 billion in 2004, and in 2017 the number is over $340 billion.
Due to the non-directional nature of many managed programs, CTAs commonly outperform the more conventional stock index based fund. Because futures markets were created to allow traders to enter long or short positions based on their needs, managers can profit with equal opportunity from the increase or decrease of the price of an asset. Unlike equities, the margin required for a short futures position is the same as a long. This enables equal profitability from long & short positions without the restrictions of additional cost.
Today, managed futures help many investors gain exposure to multiple asset classes in a non-directional, diversified, transparent and cash-efficient way that many other financial instruments do not.
For additional information on Ironbeam’s CTA programs, and how they may help your portfolio, contact our Private Client Group.
Phone: (312) 765-7200
Future Directions Report: 01.23.2017
Future Directions Report
FUTURE DIRECTIONS is a research report that provides you with an economic calendar, outlining important upcoming data releases in conjunction with easy to interpret market news. Future Directions looks at recent market movements to determine the short, intermediate, and long term trends of all the major futures contracts, along with a proprietary trend strength indicator.