BitMex, one of the world’s most advanced Bitcoin derivatives exchanges, recently announced the addition of a futures contract for Bitcoin. Now that the cryptocurrency’s value has fallen to below $300 for the first time in nearly two years, the expansion of trading alternatives could give Bitcoin the boost that it needs.
The rise in Bitcoin prices in 2013 came mostly due to increased trading. While businesses accepted Bitcoin prior to 2013, their size was usually small. After the price began to rise, many powerful companies opened their doors to the currency. Interestingly, the price began to drop afterward.
Another boost from market activity could mean we experience another rally. Perhaps the BitMex expansion will provide such a surge, especially if other exchanges follow their lead.
The new product will allow traders to speculate on the 30-day volatility of Bitcoin against the US dollar as observed on Bitfinex. This will be the world’s first Bitcoin 30-day Historical Volatility Futures Contract (BVOL).
How Futures Margins Work
The index is relatively simple to use. It takes the daily one-minute Time Weighted Average Price (TWAP) for Bitcoin/USD between the hours of 10:00–12:00 GMT and calculates the realized volatility over the past thirty days to determine the settlement on that given day. Contracts expire on the last Friday of every calendar month at 12:00 GMT and are quoted in annualized volatility percentage points.
BitMex plans to use the same margin methods on the contracts that they use on other futures. Margins are defined as the amount of money necessary to control a futures contract. Rates are set by the exchanges, and premiums can be added to protect the exchange from potential losses. This essentially means that if you want to trade Bitcoin at a 50% margin, you will be able to buy 100 bitcoins (at the current price) for US$13,850.
BitMex will make available both initial margins (30% rate) and maintenance margins (20% rate). Rates do no not include exit commission. The margins represent the amount of equity that must be kept on hand to open and maintain the contract. Leveraging is available for up to five times per contract, which means that traders will be able to obtain contracts on credit, although leveraging is not advisable unless you are a professional trader.
With futures trading opening up, Bitcoin is becoming not only more accessible to the masses, but more accepted in the world of high-end trading. What has been a hobby for people over the past two years is moving into the world of professional traders.
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