CME vs CBOE bitcoin futures (and why they both suck)
Bitcoin has come to mainstream online brokerages thanks to the launch of futures contracts by both the Chicago Mercantile Exchange (CME) and the Chicago Board of Options Exchange (CBOE/CFE). below we compare the two products and explain why you should avoid both, unless you happen to be a big institutional trader.
CME and CBOE Contract Comparison
| CME | CBOE | |
|---|---|---|
| Symbol | BTC | XBT |
| Index Tracker | Bitstamp, GDAX, itbit, Kraken | Gemini |
| Contract Size | 5 Bitcoin | 1 Bitcoin |
| Trading Hours | Sun 17:00-Fri 16:00 CST, 60 min break at 16:00 daily | Mon 17:00-Fri 16:00 CST |
| Point Value | $5 ($25 per contract) | $1 |
| Price Intervals | 1 Point | 10 Points |
| Margin Requirements | 35% | 44% |
| Market Shut Down | 7% 13%, 20% - 2 min stops, no more than 20% movement per day | 10% and 20% - 2 min stops, no more than 20% movement per day |
The issue of dollar collateralization
If it does not immediately jump out at you – these futures markets, at the moment, are pretty horrible. They require massive margins. They have extremely high minimums. They shut down when the market makes big moves – which the bitcoin market often does. They are not 24/7. We get into these issues and more below, but for retail traders we highly recommend checking out bitcoin-collateralized futures exchanges which avoid all of those negatives we just mentioned.
So we understand the market for dollar-collateralized bitcoin trading, and institutional investors, who are really the target of these futures markets, might not be so inclined to physically buy bitcoin for trading futures. However. Bitcoin is extremely volatile. In the event that the bitcoin price jumps substantially shorts will pretty quickly be well beneath their margin requirements. Again, this is fine for institutional investors who can afford to maintain massive account balances, but retail traders might be better served with bitcoin-collateralized futures trades.
Contract size and margin requirement
The first thing to note about these futures contracts is their size. Each CBOE contract represents one bitcoin while CME goes with a pretty massive five bitcoin per. Perhaps due to the more volatile nature of bitcoin compared to traditional futures markets, the minimum margin requirement is 35% and 44% for CME/CBOE respectively, a good deal higher than other instruments. However, the online brokerages have added additional margin to that as well and with the best retail margin available comes in at 66% on either exchange. (Well, interactive brokers does have a 50% margin on longs, but they have essentially killed the option to short).
Index Tracker
While a five bitcoin contract is a distinct disadvantage for CME as opposed to CBOE for the retail trader, CME comes out well on top in their index tracking methodology. Their index is comprised of four different exchange values, which is sensible considering the at times quite large difference in price between exchanges. We are not entirely sure why CBOE thought to limit their index to Gemini only, and nothing against Gemini and the Winklevoss brothers of course, but the decision does not really make sense in a market which is not entirely fungible.
Market Shut Down
Both exchanges require trading pauses in the event of (relatively) large market moves. CME starts pausing at a 7% move, which experienced bitcoin traders know is not really an aberration in the market. Both markets close for the day in the event of a 20% move, which is sort of strange to us considering trading in the larger bitcoin-denominated futures markets don’t pause, nor does the spot. This could result in traders watching impotently as they get squeezed like lemons.
Where Else could you Margin Trade Futures?
Do you work in a hedge fund looking for some bitcoin exposure for a percentage of your client holdings? Are you a high net worth individual who would like to diversify a bit into bitcoin without bothering to actually buy it? If your answer to either one of these questions is “yes”, we think TradeStation is the best option for most.
If your answer is ‘no’, then do not trade with these brokerages because their bitcoin futures, frankly, suck. You really need to buy bitcoin, and then there are multiple leveraging options available for you, cheaply, simply, with higher leverages and lower minimum buy amounts. Perhaps it is a bit burdensome to open up a bitcoin exchange account, it’s also a pain to go through mainstream KYC processes of all the online brokerages.
Once you have bought your bitcoin, there are a number of superior retail trading platforms. Check out a comparison of all the futures exchanges, but note that bitmex is the best by a country mile, but only deribit accepts US traders.