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.
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.
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.)
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.
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.
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.
Learn more about quotes and trading capabilities.
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.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Virtual currencies including bitcoin experience significant price volatility, and fluctuations in the underlying virtual currency’s value between the time you place a trade for a virtual currency futures contract and the time you attempt to liquidate it will affect the value of your futures contract and the potential profit and losses related to it. Be very cautious and monitor any investment that you make. Like all futures products, speculating in these markets should be considered a high-risk transaction.
Futures and futures options trading involves substantial risk, and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.
Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC).
Futures and futures options trading services provided by TD Ameritrade Futures & Forex LLC, member NFA. Trading privileges subject to review and approval. Not all clients will qualify.
All investing involves risk, including loss of principal.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.