Bitcoin Futures Strategies – Backtest and Example
A Bitcoin futures trading strategy refers to the methodologies and techniques you can use to trade Bitcoin futures contracts profitably. Bitcoin futures are futures contracts whose underlying asset is a specified quantity of Bitcoin. The contract trades on the CME Globex platform, and it is financially settled. A Bitcoin futures strategy would include technical and fundamental analyses of the Bitcoin futures market, allowing you to take positions on the direction of Bitcoin prices, either for speculation, portfolio diversification, or hedging purposes.
Want to know about Bitcoin futures trading strategies? Launched on December 18, 2017, Bitcoin futures has become a popular futures contract on the CME platform such that the exchange also created the micro futures contract. Bitcoin is a decentralized digital currency for peer-to-peer transactions. It is the most actively traded and the first cryptocurrency, debuting in 2009. It can be traded via the spot market on many crypto exchanges, but the real standardized Bitcoin futures trade on regulated commodity exchanges like the CME platform.
In this post, we answer some questions about the Bitcoin futures strategy, and we provide you with a backtest of a strategy.
What are Bitcoin futures?
Bitcoin futures are futures contracts whose underlying asset is a specified quantity of Bitcoin — the most popular cryptocurrency. A futures contract represents a legally binding agreement to receive or deliver the specified quantity of the asset on a future date, at a pre-agreed price. The contract trades primarily on the CME Globex platform and it is financially settled.
Apart from the Bitcoin futures that trade on the CME platform, there are also Bitcoin futures that trade on cryptocurrency exchanges. However, given how poorly regulated those crypto exchanges are, trading Bitcoin futures with them is extremely risky, which is why we will focus on CME’s Bitcoin futures.
Of all cryptocurrencies available, only Bitcoin futures contracts are offered on the CME platform. While you can trade the other crypto futures on crypto exchanges, it is only Bitcoin futures that you can trade on the CME platform. Bitcoin contracts on the CME platform are standardized in terms of quantity and date of expiry. You can use it for portfolio diversification, risk hedging, and speculation.
What is a Bitcoin futures trading strategy?
A Bitcoin futures trading strategy refers to the methodologies and techniques you can use to trade the Bitcoin contract profitably. It includes the technical and fundamental analyses for timing the Bitcoin futures market, as well as the techniques for position sizing, risk management, and so on.
Here you can find a Bitcoin Futures trading strategy.
To succeed in trading the Bitcoin futures market, you will need a robust trading strategy that offers precise entry and exit signals. Your trading strategy may also include spread trading and arbitrage across exchanges.
Bitcoin futures strategies backtest
A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.
What is the seasonality of Bitcoin futures?
Seasonality in Bitcoin prices refers to the tendency of Bitcoin prices to move in a fairly predictable way during certain periods of the year. The periods here can refer to the months of the year or seasons, such as winter, spring, summer, and fall.
Both the Bitcoin futures market is new, so the seasonality charts are not easily available. However, there is a seasonality chart for Grayscale Bitcoin Trust. See it below:
From the chart above, Bitcoin performs best in the months of April, May, August, and November. The months of January, February, March, and September tend to perform poorly.
What moves the Bitcoin market — What affects the Bitcoin market the most?
As with most cryptocurrencies, Bitcoin’s price is primarily affected by its supply, the market’s demand for it, availability, competing cryptocurrencies, and investor sentiment. Since Bitcoin supply is limited —there is a finite number of bitcoin (21 million in total and less than 20 million in circulation at the moment — the price factor is the demand for Bitcoin.
When there is more institutional interest in the market, the demand for it rises, and the price goes up. When institutional players dump the coin, the prices decline, as is the case in the 2022 crypto winter.
How are Bitcoin futures traded?
Bitcoin futures contracts are traded on the CME Group’s futures exchange in full and micro contract sizes. On the Globex electronic platform, the contract trades from Sundays to Fridays from 5:00 p.m. to 4:00 p.m. CT the next day, with a one-hour break at the end of each day.
There are monthly contracts listed for 6 consecutive months, quarterly contracts (Mar, Jun, Sep, Dec) listed for 4 additional quarters, and a second Dec contract if only one is listed. The full contract size is 5 Bitcoin while the mini contract size is 0.1 Bitcoin. The contracts are financially settled. Trading terminates at 4:00 p.m. London time on the last Friday of the contract month that is either a London or U.S. business day — if the last Friday of the contract month is not a business day in both London and the U.S., trading terminates on the prior London or U.S. business day.
How do you start trading Bitcoin futures?
To trade the contract, you need a futures broker that will grant you access to the CME exchanges where Bitcoin futures contracts are traded. The first step to start trading is to register with a futures broker and fund your account. Since futures are leveraged instruments, you don’t need to have the total worth of the contract to be able to trade it — just a little above the required margin is enough.
Alternatively, you can trade Bitcoin futures via a crypto exchange, such as Binance or Crypto.com, but given that those exchanges are poorly regulated and don’t maintain segregated accounts/wallets for clients’ funds, it may be risky to trade with them. Another option is to trade the CFD of Bitcoin futures contracts via an online CFD broker, such as IG. With CFD, you can trade price fluctuations without having to worry about contract expiry which applies to futures contracts.
What is Bitcoin trading at?
Bitcoin futures were trading at $16745 as of December 7, 2022. See the chart here on the CME platform chart. The chart was captured from TradingView.
As the price changes from time to time, what is quoted here may not be the price it would be trading when you are reading this post. To get the real-time price on the CME platform or directly from TradingView, click either of those links.
What’s Bitcoin futures hour?
Bitcoin futures trade on the CME Globex electronic platform from Sundays to Fridays; the trading hours begin from 5:00 p.m. to 4:00 p.m. CT the next day. There is a one-hour break before the start of the next trading day (4:00 p.m. – 5:00 p.m. CT) from Monday to Thursday for maintenance.
For BTIC, the trading schedule is Sunday to Friday, from 5:00 p.m. to 4:00 p.m. CT with a trading halt from 4:00 – 4:30 p.m. London Time (10:00/11:00 – 10:30/11:30 a.m. CT) and a daily maintenance period from 4:00 – 5:00 p.m. CT.
For CME ClearPort, the schedule is Sunday – Friday, 5:00 pm – 5:15 pm CT, with no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT.
Where can I find trading charts?
Charts can be found on any trading platform, provided it offers chart services. If your platform does offer charts, you can subscribe to trading charts via a third-party platform, such as MultiCharts.
A better option is to use TradingView, which even offers free access to charts of different instruments. However, if you want to connect to your broker, you have to subscribe to the Pro services. You can also access the TradingView chart via the CME platform.
What are the trading symbols for Bitcoin futures?
The full contract’s product codes are as follows:
- CME Globex: BTC
- CME ClearPort: BTC
- Clearing: BTC
- BTIC: “BTB”,”BNB”
The micro contract’s symbol and product codes are as follows:
- CME Globex: MBT
- CME ClearPort: MBT
- Clearing: MBT
- BTIC: “MIB”,”MYB”
What is the specification for the Bitcoin futures contract?
One full contract of Bitcoin futures is equivalent to 5 Bitcoin, while one micro contract is equivalent to 0.1 Bitcoin. The price quotation is in U.S. dollars and cents per Bitcoin. The minimum price fluctuation of the full contract is $5.00 per Bitcoin, equivalent to $25.00 per contract for outright trading and $1.00 per Bitcoin or $5.00 per contract for BTIC and calendar spread. The minimum fluctuation of the micro contract is the same, tailored to the contract size.
For both contract sizes, there are monthly contracts listed for 6 consecutive months, quarterly contracts (Mar, Jun, Sep, Dec) listed for 4 additional quarters, and a second Dec contract if only one is listed. The contracts are financially settled. Trading terminates at 4:00 p.m. London time on the last Friday of the contract month that is either a London or U.S. business day — if the last Friday of the contract month is not a business day in both London and the U.S., trading terminates on the prior London or U.S. business day. For BTIC, trading terminates at 4:00 p.m. London time on the last Thursday of the contract month, and if this is not both a London and U.S. business day, trading terminates on the prior London or the U.S. business day.
Why should you start trading Bitcoin futures?
There are many reasons to trade Bitcoin futures, but the primary one is speculation. You can trade Bitcoin futures to profit from the sizeable volatility in the Bitcoin market. Another reason to trade this contract is to diversify your portfolio into the crypto market — Bitcoin is the biggest market in the crypto industry and offers the best liquidity for those who want to gain exposure in the crypto market.
Some also see Bitcoin as a store of value and a hedge against inflation, but it has not fared so well in that regard in 2022.
What is the contract size?
One full contract of Bitcoin futures is equivalent to 5 Bitcoin, while a micro contract is equivalent to 0.1 Bitcoin. Given that the current price of 1 Bitcoin as of writing is $16745, the USD worth of a full contract of Bitcoin is 5x $16.745 = $83,745. That of the mini contract would be 0.1 x $16745 = $1,674.50.
What is the tick size?
The tick size of one full contract of Bitcoin futures for outright trading is $25.00 per contract, while that of the micro contract is $0.5 per contract.
What is the minimum price fluctuation for Bitcoin futures?
The minimum price fluctuation of the full contract for outright trading on the Globex platform is $5.00 per Bitcoin, which is equivalent to $25.00. That of the micro contract is $5 per Bitcoin, which is equivalent to $0.5.
Are there any ETFs?
Yes, there are quite a number of them:
- ProShares Bitcoin Strategy ETF (BITO)
- AdvisorShares Managed Bitcoin Strategy ETF (CRYP)
- ProShares Short Bitcoin ETF (BITI)
- VanEck Bitcoin Strategy ETF (XBTF)
- Valkyrie Bitcoin Strategy ETF (BTF)
What factors affect Bitcoin prices?
There are many factors that affect Bitcoin prices. These are some of them:
- Institutional demand
- Competing cryptocurrencies
- Investor sentiment
- News about the crypto market
- Bankruptcies of crypto exchanges, as in the case of FTX
- Failure of other crypto coins, as in the case of Luna
What is the all-time high for Bitcoin futures?
Based on the TradingView chart for Bitcoin futures (BTC), the all-time high for the Bitcoin futures market is $69355. It reached this level in November 2021.
What are the biggest risks in trading Bitcoin futures?
The biggest risk when trading Bitcoin futures comes from adverse price movement, which can be disastrous when overleveraged. As a leveraged instrument, Bitcoin futures can give oversized losses because the losses are calculated using the actual value of the contract size traded, not the margin deposited by the trader. With a 20x leverage, a 5% negative movement would wipe out your account.
What is the settlement method?
Financially settled
What is the settlement procedure?
There is the usual daily settlement, where CME Group staff determines the daily settlements for Bitcoin (BTC) and Bitcoin Euro (BTE) futures based on trading activity on CME Globex between 14:59:00 and 15:00:00 Central Time (CT), the settlement period.
On expiry, delivery is by cash settlement by reference to the Final Settlement Price, equal to the CME CF Bitcoin Reference Rate (BRR) on the Last Day of Trading.
What is the block minimum for Bitcoin futures?
5 contracts
What is the difference between Bitcoin futures and Forex for Bitcoin?
The Bitcoin spot market can be traded via crypto exchanges, and it allows you to own the Bitcoin itself, which you can hold in your private wallet. Bitcoin futures, on the other hand, are derivative contracts and don’t offer ownership of Bitcoin.
There is also CFD trading offered by online CFD brokers. This differs from Bitcoin futures in that futures contracts have fixed expiration dates, while CFDs can be traded indefinitely.
Which forex pair is the same as Bitcoin futures
Bitcoin CFD
What are some important dates for this market?
Some of the important dates in the Bitcoin market include:
- 2009 when Bitcoin was created
- December 2017 when CME created Bitcoin futures
- November 2021 when the first Bitcoin ETF was created
What is the highest Bitcoin has ever been — its all-time high?
Based on the TradingView chart for Bitcoin (BTC/USDT on Binance), the highest level Bitcoin has ever reached was $69000. It reached this level in November 2021.
What is the lowest Bitcoin has ever been — its all-time low?
According to data from bankrate.com the lowest level Bitcoin has ever transacted was $0.00099 per Bitcoin in 2009 when it made its first transaction via an exchange.
Conclusion
Bitcoin futures trading strategies enables you to gain exposure in the Bitcoin market for speculative, portfolio diversification, or hedging purposes.
FAQ:
How do I start trading Bitcoin futures?
To start trading Bitcoin futures, you need to register with a futures broker that provides access to the CME exchanges. After registration, fund your account, and you can start trading. Alternatively, you can trade Bitcoin futures via crypto exchanges or trade the CFD of Bitcoin futures contracts through online CFD brokers.
What factors affect Bitcoin prices?
Bitcoin prices are influenced by factors such as institutional demand, competing cryptocurrencies, investor sentiment, news about the crypto market, and the financial health of crypto exchanges.
What is the difference between Bitcoin futures and Forex for Bitcoin?
Bitcoin futures are derivative contracts, while Forex for Bitcoin involves trading the cryptocurrency in the spot market. Futures contracts have fixed expiration dates, while Forex trading can be done indefinitely.