Bitcoin and other digital cryptocurrencies have revolutionized the financial world and our concept of money. Since December 10, 2017, bitcoin futures have been available to trade on the Chicago Board Options Exchange (CBOE).

A few days later, on December 17, Bitcoin hit its all-time highest price of $19,783.06. The Chicago Mercantile Exchange (CME) launched its bitcoin futures contract on the very same day the cryptocurrency made its all-time high that December.

On March 18, 2019, the CBOE announced it would not list any more bitcoin futures contracts. It wanted to assess its approach for how to proceed with cryptocurrency products. The phasing out of the bitcoin futures contract on the CBOE was largely due to the higher volume on the CME, which consistently beat out the volume on the CBOE’s Bitcoin contract.

The CME self-certified its bitcoin futures contract with the Commodity Trading Futures Commission (CFTC) effective on December 18, 2017. If you want to learn how to trade bitcoin futures, you’ll likely be trading CME futures regulated by the CFTC.

What to Know Before You Start Trading Bitcoin Futures

The first thing to know about how to trade bitcoin futures is that no bitcoins are involved. In other words, since the futures are contracts that settle financially in cash, no bitcoin actually changes hands.

As in other futures contracts, you speculate on the price of bitcoin and not buying or selling the underlying cryptocurrency asset itself.

No cryptocurrency trading platform or wallet is needed. This is because futures contracts either settle financially on the delivery date or are offset by traders reversing out of their positions as the delivery date approaches.

If the buyer or seller of a bitcoin futures contract holds the position and shows a profit on the delivery date, then the difference between the purchase price and the settlement price is paid out to the holder of the futures contract.

The CME bitcoin futures contract (BTC) specifications are for 5 bitcoin as defined by the CME Crypto Facilities Ltd. (CF) Bitcoin Reference Rate (BRR). This aggregates activity in Bitcoin trading across major bitcoin spot exchanges between 3 p.m. and 4 p.m. GMT.

The minimum fluctuation for a futures contract is $25 per contract and $5 for calendar spreads.

Trading times for bitcoin futures, which can be found on the CME, the CME Globex and the CME ClearPort trading platforms are from 5 p.m. until 4 p.m. CST Sunday through Friday. An hour of inactivity between 4 p.m. and 5 p.m. gives a clear opening and closing quote for the contracts, unlike bitcoin itself, which trades 24/7.  

The listing cycle for the bitcoin futures contract is the March quarterly cycle, consisting of March, June, September and December, plus the nearest two serial months not in the March quarterly cycle.

Serial months are months in which a futures trade can be made that isn’t in the quarterly cycle. The last day of trading is the last Friday of the contract month. Trading in futures set to expire terminates at 4 p.m. GMT on the last day of trading.

How to trade bitcoin futures is just as important as where you trade, so make sure you pick the right broker. A reputable futures broker is usually a member of the National Futures Association (NFA) and submit to regulatory oversight by the CFTC.

To start trading futures, you must first open an account with a registered futures broker where your account can be maintained and your trades guaranteed. Futures brokers are generally known as either a futures commission merchants (FCMs) or introducing brokers (IBs).

Step 1: Learn How Futures Trade

Futures contracts trade differently than stocks, funds and fixed income instruments, so if you’ve never traded futures, learn how they trade and the requirements for traders. For starters, bitcoin futures have very high margin requirements.

The CME’s maintenance margin requirement for bitcoin futures is 37% of the price of the futures contract and initial margin for a hedger is 100% of the maintenance margin. Also, the margin for speculators is 110% of the maintenance margin. While margin offsets can be obtained with other CME financial products, the exchange does not offer them initially to new traders.

Keep in mind that the margin requirements mentioned above are the CMEs; an FCM may have higher margin requirements depending on the market and the trader. Other considerations consist of how closely the futures prices track the spot price, the liquidity in the market and how other traders and market makers are positioned.

Step 2: Build a Trade Plan

Developing and implementing a trading plan could be the most important thing you do to further your trading career. Base your trading plan on careful analysis of the market you plan to trade in.

As you develop your trading plan, consider what your objectives are for each trade, the amount of risk you plan to take on a trade and how much risk is acceptable for each trade.

Other factors include the technical and fundamental analysis indicators you plan to use to generate buy and sell signals, the types of orders you plan to use and the way you plan to monitor the market and price developments.

Money management and position sizing must also be considered when trading in the volatile bitcoin futures market. If you have difficulty developing your own plan, you can either follow what other traders do or use someone else’s trading plan.

Step 3: Find a Broker

An experienced and professional firm as your futures broker can make a significant difference in your overall long-term success. Try several brokers to find the one that suits your needs.

Here are Benzinga’s picks for the best future brokers for bitcoin futures: