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20 MAY 2021

How to trade Micro Bitcoin futures (MBT)

Understand Micro Bitcoin futures and how they differ from trading spot cryptocurrencies

By CME Group

  • 20 May 2021
  • By CME Group
  • Topics: Bitcoin

Step one: Open an account with a futures broker

Buying and selling physical cryptocurrencies such as bitcoin or ether on exchange platforms like Coinbase or Binance requires opening an account directly with that exchange. But to trade cryptocurrency futures at CME Group, you need an account with a futures broker that is licensed to execute futures trades. A list of brokers that offer clients access to trade Micro Bitcoin futures can be found here. Once the account is set up for MBT and funded, you are ready to trade.

Step two: Learn how trading futures differs from trading spot cryptocurrencies

A futures contract is an agreement to buy or sell a commodity, asset, or security at a predetermined price at a specified time in the future. Futures have standardized contract specifications to facilitate trading on a futures exchange.

Because each Micro Bitcoin futures contract represents 1/10 of one bitcoin, if you trade a single contract, you are gaining exposure to 10% of the current value of bitcoin.

Step three: Find out how much exposure MBT futures will give you

Because each Micro Bitcoin futures contract represents 1/10 of one bitcoin, if you trade a single contract, you are gaining exposure to 10% of the current value of bitcoin. So, if one bitcoin was worth $60,000, your long or short notional exposure would be $6,000. Similarly, if the price of bitcoin were to move by $100, your profit and loss would be 10% of the move or $10.

Step four: Select the futures contract month you wish to trade

Futures contracts have what is known as an “expiration date.” In the case of Micro Bitcoin futures, the expiration date is the last Friday of the month. On the expiration date, the Micro Bitcoin futures contract financially settles in US dollars to the value of the underlying index, the CME CF Bitcoin Reference Rate (BRR). At expiration, you will realize the difference between the price at which the contract was entered into and the price at expiry.

As the MBT contract is “cash settled,” there is never a transfer of physical bitcoin involved. Additionally, the contract size is 0.10 bitcoin, and six consecutive monthly contracts (including the nearest two December contracts) will be listed.

Example

For example, suppose Trader A purchased one contract of the May 2021 MBT contract and paid near the midpoint of the bid/offer of 56,045. The trader in our example believes the price of bitcoin will rise and decides to hold the contract until it expires on expiration day at 4 p.m. London time. At this time, the contract will settle to the value of the BRR, an index that takes into account the price of bitcoin on major BTCUSD exchanges. Let’s assume that the price of bitcoin, as determined by the BRR, on the contract’s expiration date has risen to $60,000. This increase would be reflected in the trader’s account in the form of a profit of 3,955 points. In the case of the MBT contract (which represents 0.10 bitcoin), the increase would be a profit of $395.50. As of 4 p.m. London Time, on expiration day, the trader would no longer have a position in MBT. 

As the MBT contract is “cash settled”, there is never a transfer of physical bitcoin involved.

What if I want to maintain my exposure to the price of bitcoin?

Instead of taking a contract through to expiry, a trader can enter into another transaction for a longer-dated contract.

A common transaction that occurs in all futures markets is called a “futures roll.” This transaction simply involves selling/buying the futures month that you’ve bought/sold and buying/selling the next futures month in the expiration cycle.

In our example, if the trader wanted to maintain their long Micro Bitcoin futures position into June, they would simply sell the May contract and buy the June contract before the May contract expires (CME Group has tools and resources that help traders determine when most of the “roll” activity takes place).  CME Group also has market makers that quote this spread, allowing traders to execute the “futures roll” in a single, efficient transaction. As a result, the trader would no longer have a position in the May contract but would be long in the June contract, thus maintaining their exposure to the price of bitcoin. 

Why is the spot price of bitcoin on spot crypto exchanges often less than the price of Bitcoin futures?

The spot price of bitcoin will vary from crypto exchange to crypto exchange depending on their cost structure, ease of moving fiat/coins, and levels of supply and demand. However, across all the competing crypto exchanges, the price for bitcoin is the price that you would pay now to access bitcoin on the respective exchange.

On the other hand, Bitcoin futures (and Micro Bitcoin futures) represent the price of bitcoin at some point in the future. As such, there is an embedded cost of carry to hold the position to expiry which, in industry parlance, is referred to as the “implied financing” of a futures contract. As the time to expiration increases, the basis (price difference between futures and spot) becomes greater (as you can see in the earlier example). As we approach expiration, the price of the Bitcoin futures contract converges and settles to the BRR.

The spot price of bitcoin will vary from crypto exchange to crypto exchange depending on their cost structure, ease of moving fiat/coins, and levels of supply and demand.

I don’t trade on margin because I don’t want to take a loan from my broker

Margin on a futures contract, as opposed to a margin account in equities, is not a loan from your broker but rather a performance bond that you must post. Unlike a margin loan, you are not charged interest on the margin you post to hold a futures contract, and you will receive credits or debits in your account at the end of each day, depending on whether or not the market moved in your favor.

One of the benefits about trading futures is their inherent capital efficiencies, or leverage. In other words, in order to hold a futures contract, a trader is required to only put up a fraction of the notional amount that the futures contract represents. In the case of CME Micro Bitcoin futures, exchange minimum maintenance margin is 35%,1 but note that clearing firms may ask for a greater amount.

1. Margin is subject to change

What if I believe the price of bitcoin is going to decline?

Another basic tenet of futures trading is that if a trader desires to “short” a given market, they do not incur borrowing fees nor “locate” requirements. If a trader wants to short Micro Bitcoin futures, they can simply sell the contract in their desired contract month and post the required margin as discussed above.

Can I trade Micro Bitcoin futures 24/7?

Micro Bitcoin futures, as with most CME Group futures, are available for trading nearly 24 hours a day, six days a week on CME Globex, our electronic matching engine ‒ beginning Sunday evening at 6 p.m. ET and ending Friday evening at 5 p.m. ET with a daily one-hour maintenance window between 5 p.m. to 6 p.m. ET Monday through Thursday.

Micro Bitcoin futures (MBT)

Learn more about Micro Bitcoin futures and how the contract can add more precision and cost-efficiency to your trading strategies.