Tech

Bitcoin futures trading: What it is and should you be investing?

Bitcoin futures trading: What it is and should you be investing?

The price of bitcoin is quoted at $16,336 on the Coindesk exchange.

Interactive Brokers said it offers bitcoin futures under the ticker symbol "GXBT" on the CFE and plans to offer the same on the Chicago Mercantile Exchange (CME) from December 18, a day after the exchange launches its own futures contract. The entrance of regulated exchanges enables professional investors who have been unwilling to do business on the unregulated platforms where bitcoin now trades to place bets on bitcoin's price. Despite high-profile hacks resulting in millions of dollars of losses, and an eternally fluctuating value, moneymakers love Bitcoin. To quote the aptly-titled "Crypto Through The Tulips" piece in The Economist, "The beauty of bitcoin is that its intrinsic value is impossible to determine and that makes any value plausible to true believers". Once the news was released from Cboe Global Markets, a top U.S owner of financial exchanges, their website tweeted that they were experiencing "heavy traffic".

But, with next week seeing the launch of Bitcoin Futures on an even bigger futures exchange, the CME, we'll have to see how long cool heads prevail. The market cap of Bitcoin is now $283 billion. Interestingly, the Futures Industry Association has criticised the US Commodities and Futures Trading Commission's support of the CBOE, stating that not enough attention has been paid to the risks involved with Bitcoin trading. Such volatility could trigger trading limits in the futures, though many investors speculate the contracts will improve price discovery.

Futures are a type of contract in which a buyer and a seller agree on a price for a particular item to be delivered on a certain date in the future, hence the name.

More news: Caxton Associates LP Has $1.58 Million Stake in Southwest Airlines Company (LUV)

How much actual investor interest there will be in these bitcoin futures is still up in the air. A number of the proposals rely on the futures, which do trade in regulated markets. Many larger Wall Street brokerages and clearinghouses, including Goldman Sachs and JPMorgan Chase, are either not allowing customers to trade bitcoin futures or only allowing select clients to do so.

The front-month bitcoin contract, which expires in January, traded at $17,970 on Monday morning. They are created on computers using complex algorithms and recorded in a digital ledger.

Interestingly, they were recently called the first bitcoin billionaires.

A debate is raging on the merits of such currencies.


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