Best sites to trade with CME Bitcoin futures
You want to know more about Bitcoin futures, but don’t know where to start? Then you’re right here. Below you will find more information about what it is, how it works and what the best different Bitcoin futures platforms are to get started.
Since 2017, Bitcoin owners can use so-called futures. The idea behind futures is to give Bitcoin more authority in the financial world. With a future, you get the right to sell Bitcoin on a specific date at a specific price. This works contractually. In this article, we will go deeper into the use of futures.
Bitcoin futures explained
CBOE was the first party to introduce bitcoin futures in 2017. Actually, the principle of a future is not new at all: they have been around since 1972. For example, you can have futures in Forex, shares, oil or gold. And since 2017, you can also have futures in Bitcoin.
With a future, you acquire the right to sell or buy an underlying asset (such as bitcoin) on a specific date at a specific price. What the trader does not know in advance is whether the price will rise or fall before the contract expires. This is the risk that professional traders take.
How do CME bitcoin futures work?
Futures are used by investors and speculators. Bitcoin investors are looking for a position to hedge (future) risks in order to limit damage. On the other hand, of course, they also want a return on investment: their investment has to deliver something. Investors earn back their investment in the long term.
Speculators, on the other hand, want to make money quickly with futures. It is short-term thinking. To achieve this, they speculate on a higher price. Both investors and speculators never work directly with bitcoin. A future is a derivative; a derivative of the real product.
Types of Bitcoin futures trading
Basically, there are two kinds Bitcoin futures trading when we talk about Bitcoin. First of all, there is the Cash-settled future. This future means that the holder is paid out in traditional currency after the contract is concluded. So contracts can be entered into before the contract formally expires.
The second variant is Bitcoin-settled futures. Holders are paid in Bitcoin once a contract expires. Thus, the holder of futures receives a certain amount of Bitcoin deposited into his or her (broker’s) account.
Futures trading at Binance
At Binance it is possible to trade futures. This can be done in four different ways, with a limit order, a market order, a stop-limit order or a stop-market order.
In the case of a limit order, the trader determines the price limit himself. The order is then placed in the order book with the price specified by the trader. The transaction is executed when the market price reaches the specified price. You can therefore place limit orders at a lower price than the current market price. This way you can still buy the coins. It is also possible to sell at a higher price than the current market price.
A market order works with a small fee to be able to buy or sell a buy Bitcoin order or a sell order at the most favourable price at the moment. A market order therefore takes place immediately at the moment that the most favourable rates have been recorded. This depends on the limit order in the order book.
Stop limit order
A stop-limit order is a bit more complicated: it consists of the stop price and the limit price. In this method, the stop price is the ‘trigger’. This ensures that the order is entered in the order book. The limit price is used when the market price reaches a previously specified limit.
You can equate the stop and limit prices, but you do not have to. In some situations it is even safer to set the stop price slightly higher than the limit price for sell orders, or slightly lower than the limit price for buy orders. It is then more likely that the limit order will be triggered after the stop price has been reached.
Stop market order
At Binance you can also work with a stop-market order. This is the same as the stop-limit order, but there is a difference. When the stop price is reached, a market order is placed immediately after the stop price is reached.
Placing an order
To start trading, log in to your Binance account or create one. Then click on ‘Exchange’ and select ‘Basic’. Basic is not very basic, because you’ll see a quite detailed screen. Choose a trading pair. Binance has a list of hundreds of Bitcoin pairs for which Binance offers an exchange rate. You can then trade two coins with each other.
Choose what kind of trade you want to make. Here you can choose between limit order, market order, stop-limit order or stop-market orders. Then choose the quantity you want to trade. Click on ‘Market’ if you are satisfied with the current market price and fill in how much of the currency you want to buy. You can indicate this quantity as a percentage of the amount of Ethereum you have in your account, for example.
Trading futures at BitMEX
BitMEX is a well-known platform for Bitcoin futures. This is the core business of the platform. It is really limited to trading futures, unlike Binance. The system is therefore somewhat simpler.
You can start trading futures by registering on the BitMEX site. After registration you will receive a link by email to confirm your account. After that, you turn on 2-factor authentication for optimal security.
The second step is to deposit funds into your account. You do this by going to the ‘Account’-tab and clicking ‘Deposit’. You can then scan your QR code or enter a copy of your wallet address.
Now navigate to the trading screen. You do that by clicking on ‘Trade’. You will be connected to a screen where you can click on the tab of the crypto you want to sell, including Bitcoin.
Enter the position you want on the market. For example, you can place a market order. At BitMEX, enter how much you want to trade. This is the amount you want to buy or sell in U.S. dollars.
Then you set the influence. For example you can set the amount of influence to 5 times the amount you want to trade. This will also limit or increase the risk.
Before you place a trade, you can take a look at the details. In the ‘Quantity’ field you’ll see the value of your position, the money you’ve put in the trade and the maximum amount you can lose if the market turns against you.
If you think that the price will rise and you opt for the long term, click on ‘Buy Market’. If you choose the short term, because you think the market will collapse, click on ‘Sell Market’. You will then see another screen with all the details. First check if this is what you want to do and then click on the button that confirms your order.
CFDs on Plus500
At Plus500 Bitcoin, futures are called ‘contracts for differences’. The principle is the same: trade on a speculative basis, without trading or owning Bitcoin. It is about exchanging contracts.
Start by creating an account with Plus500. You do this by filling in a form and confirming your identity. Then deposit funds into the Plus500 trading account.
You can now start trading. You can both buy and sell Bitcoin CFDs under certain conditions at any time. This allows you to take advantage of both low and high prices, depending on whether you buy or sell. Trade at current prices, or use a futures order to trade when a specific price is reached.