What are cryptocurrency futures and how do they work on exchanges?

Essentially, cryptocurrency futures are contracts between two investors that bet on the future price of a cryptocurrency. Crypto futures allow investors to gain exposure to certain cryptocurrencies without having to purchase any of them. A cryptocurrency futures contract is similar to a commodity futures contract in that it provides the opportunity to make a bet on what the price trajectory of an underlying asset will be. 

Cryptocurrency futures trade on the Chicago Mercantile Exchange and cryptocurrency exchanges.

Early in December 2017, Cboe released the first Bitcoin futures contracts, but the contract was soon discontinued. CME also introduced Bitcoin futures contracts in December of 2017. A CME CF Bitcoin Reference Rate and a CME CF Ether Reference Rate are used to determine the price of the Bitcoin and Ether futures traded on the Globex electronic trading platform, leadership which settles in cash. Bitcoin futures are traded on the Globex electronic trading platform.

Cryptocurrency Futures: An Overview

The futures contracts on any underlying asset are derivative contracts of that underlying asset. These contracts are bought and sold between two commodities investors, and they speculate on the underlying asset’s price as it is likely to change at some point in the future.

As far as the contracts are concerned, investors need to meet certain requirements in terms of the number of units, the price, the marginal requirements, and the settlement methods.

What are the best places to trade cryptocurrency futures?

BTCC: one of the largest cryptocurrency exchanges in the world based on trading volume, also accounted for $3.29 billion of the total volume traded in Bitcoin futures on the exchange.  

Bybit: This platform was launched in 2018 by a derivatives trading firm that accounts for $2.30 billion of the total trading volume of Bitcoin futures.

CME: As a leading trading market based in the United States, CME controls $2.24 billion of the total volume for all market trading activities. 

FTX: It has been a relatively recent addition to the crypto trading ecosystem, but FTX has surged to prominence in a very short period of time.

OKX: There is no doubt that OKX ranks among the world’s biggest cryptocurrency exchanges. While it may not be as well known among U.S. audiences as Coinbase Inc. (COIN), OKX is among the world’s largest cryptocurrency exchanges. However, due to regulatory compliance reasons, OKX is not available to U.S. customers.

Cryptocurrency Futures Trading Considerations

The number of venues that offer cryptocurrency futures trading is limited, as are the number of participants and the volume of trades in comparison to other commodities, which means that cryptocurrency futures trading has its own set of peculiarities as compared to other commodities.

Trading Volume

It is possible for cryptocurrency futures trading volumes to mimic the volume of their spot market counterpart, as well as high price fluctuations, especially during periods of volatility with regard to the price. As a result, cryptocurrency futures may seem to follow spot market prices, or they may appear to trade at a significant premium or discount to spot market prices during such times.

This means that Bitcoin futures may not offer sufficient protection against the volatility of the underlying futures market. The SEC issued a warning in June 2021 regarding the dangers of trading cryptocurrency futures. In addition to understanding that Bitcoin, including gaining exposure to it through the Bitcoin futures market, is a highly speculative investment, investors should also understand that it is a highly speculative investment. 

Most Exchanges Are Unregulated

In most cases, Cryptocurrency Leverage Trading occurs outside of the purview of regulation, with the exception of select trading venues like CME. It is only CME that is regulated by the CFTC among the largest Bitcoin futures platforms in the world. The second and third largest platforms in the world by trading volume, BTCC and FTX, both of which have just recently opened U.S. subsidiaries, respectively.