New Micro Bitcoin Futures Offer “Smaller Bite” Exposure to Crypto

CME Group is now listing Micro Bitcoin futures. Approved account owners can now trade them on the thinkorswim® platform. Here’s what you need to know.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Serving up Bitcoin: CME launches Micro Bitcoin futures
5 min read
Photo by TD Ameritrade

Key Takeaways

  • Bitcoin and other cryptocurrencies are increasingly becoming part of the global financial system but remain risky
  • CME Group recently launched “Micro” Bitcoin futures, a smaller version of larger contracts linked to the cryptocurrency

  • Before buying anything crypto related, investors should understand the unique risks of these markets

Note: As of this writing, CME Bitcoin and Micro Bitcoin futures are the only cryptocurrency products available to qualified TD Ameritrade clients on the thinkorswim® platform, and not all clients will qualify to trade them. Visit the Bitcoin Futures page for more information.

The cryptocurrency pool keeps getting wider and deeper. And futures traders now have a new way to dip a toe in the water. On May 3, CME Group launched Micro Bitcoin futures (MBT), which are linked to the actual cryptocurrency but require less money up front. Micro Bitcoin futures, similar to CME Group’s contracts based on the S&P 500 Index, offer smaller and potentially more cost-effective opportunities for futures and crypto market newcomers.

Bitcoin’s latest boom—the cryptocurrency surged past $60,000 in early 2021 for the first time, a more than five-fold jump from last fall—could indicate growing acceptance of digital currencies among consumers and businesses around the world. But for many retail investors and traders seeking crypto exposure, bitcoin, and CME Group’s full-size bitcoin futures product is a bar too high. That’s one of several reasons why “smaller-bite” Micro futures might be worth considering.

Smaller products like the Micro E-Minis can make it less expensive to trade, according to Stephanie Lewicky, senior manager, trader education at TD Ameritrade. For retail investors and traders, Micros can be a handy way to gain futures exposure but avoid pricier contracts.

“Bitcoin and other cryptocurrencies are becoming ingrained into the world financial system,” Lewicky pointed out. “Bitcoin’s price has grown increasingly high priced and is incredibly volatile. For retail investors, Micro Bitcoin futures may offer opportunities for lower-cost and associated lower-risk exposure to bitcoin, along with other potential benefits, such as greater diversification and capital efficiency.”

Here are a few basics on CME Group’s new Micro Bitcoin futures and how Micro futures could be applied to investing or trading strategy.

Micro Bitcoin Futures Require Lower Margin than Full-Size Bitcoin Futures Contracts

Futures contracts, which are agreements to buy or sell a predetermined amount of a commodity or financial product on a specified date, are typically highly leveraged—meaning a relatively small amount of money can control a relatively large amount of underlying value (often referred to as “notional” value).

Micro Bitcoin futures are one-fiftieth (about 2%) the size of the bitcoin futures contract (BTC) CME Group launched in 2017, so MBT’s margin requirement is also about one-fiftieth the size of its larger counterpart. (In late April, initial margin for one full-size bitcoin futures contract was about $172,000.)

Futures Markets Are Regulated and Traded Around the Clock

U.S. futures trading, including CME Group’s bitcoin-based futures contracts, is regulated by the Commodity Futures Trading Commission, and futures exchanges typically operate “clearinghouses” to backstop customers and make sure all trades are settled (“marked-to-market”) daily. No such structural protections exist yet for actual bitcoin and other cryptocurrencies.

Micro Bitcoin futures, like other CME futures contracts, trade on CME Group’s Globex electronic system, where markets typically open on Sunday nights (U.S. hours) and trade almost uninterrupted (except for a daily 60-minute break) through late Friday afternoons.

Like other futures markets, Micro Bitcoin futures settlement is determined by some sort of a cash market or reference benchmark. In the case of Micro Bitcoin futures, it’s the CME CF Bitcoin Reference Rate, which aggregates bitcoin trading activity across major spot exchanges between 3 p.m. to 4 p.m. London time.

Micro Bitcoin Futures and Bitcoin Futures Contract Specs
For illustrative purposes only.

Markets Show Growing Appetite for Crypto, Micros

The new Micro Bitcoin futures join other CME Group Micro versions of widely followed equity benchmarks, including the S&P 500, Nasdaq-100, Russell 2000, and Dow Jones indices. Trading in CME Group’s bitcoin futures grew sharply in recent months (though it’s still a fraction of some of the exchange’s most popular contracts).

During the first three months of 2021, an average of 13,469 bitcoin futures contracts traded each day, up 43% from the same period in 2020, according to CME Group data. By comparison, trading in Micro E-mini S&P 500 Index futures averaged 1.05 million contracts a day during the first three months this year, up 53% from the same period last year.

Trading volume is an important indicator of liquidity, reflecting whether a market has ample buyers and sellers and that orders are executed quickly and efficiently. Micro futures trading has surged since the contracts were launched in 2019, reflecting in part the growing acceptance of futures and expanding demand from retail traders and others for smaller contracts and more choices, Lewicky added.

Futures Can Help Provide More Capital Efficiency

Because futures are often highly leveraged, you can control a relatively large amount of underlying value with a relatively small amount up front, as well as take certain positions that don’t tie up a lot of your capital for long periods of time.

Similar capital efficiency aims can be applied to bitcoin futures. Say you hold actual bitcoin or other cryptocurrency you want to keep for the long haul but are concerned about short-term events that might hurt the value of your holdings. A hedging strategy based on bitcoin futures may offer the potential to ride out such events without having to part with the underlying assets.

Keep in mind: Leverage is a double-edged sword; it can magnify your gains as well as your losses, meaning a small amount of market movement can have a large effect—positive or negative—on an account’s profit and loss.

Bitcoin and other cryptocurrencies are definitely “hot” for now but are still relatively new markets with big potential as well as big risks, and anything crypto-futures-related should be viewed through a similar lens. Investors would be wise to carefully weigh whether bitcoin futures are appropriate by considering trading experience, long-term objectives, and other important factors. (Need a refresher on the basics of crypto? Here’s where to start.)

For additional information, read more about the basics of bitcoin and other cryptocurrencies, and check the TD Ameritrade Bitcoin Futures page.

Bruce Blythe is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.

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Key Takeaways

  • Bitcoin and other cryptocurrencies are increasingly becoming part of the global financial system but remain risky
  • CME Group recently launched “Micro” Bitcoin futures, a smaller version of larger contracts linked to the cryptocurrency

  • Before buying anything crypto related, investors should understand the unique risks of these markets

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