Bitcoin CFD and Futures Trading
By: Ofir Beigel | Last updated: 12/27/23
Bitcoin CFDs (Contracts for Difference) and futures are investment vehicles that allow you to speculate on the price of Bitcoin without actually buying the coins. This post will explain what Bitcoin CFDs are and how they are different from Bitcoin futures.
Bitcoin CFD Trading Summary
Bitcoin CFDs and futures allow you to strike a deal about the future price of Bitcoin and profit (or lose) from price changes. They are in fact a form of “betting” on Bitcoin’s price.
While CFDs and futures are very much alike, there are some differences that distinguish these two products from one another. Here are the best CFD brokers around:
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That’s Bitcoin CFDs in a nutshell. If you want a more detailed review, keep on reading. Here’s what I’ll cover:
- Bitcoin Futures Explained
- Bitcoin CFDs Explained
- CFDs vs. Futures
- Best Bitcoin CFD and Futures Brokers
- Frequently Asked Questions
Futures are an investment vehicle originally created to help traders protect themselves from price changes in different commodities. Many people who trade assets are looking for certainty in their future income, and that’s hard to achieve when prices constantly fluctuate. That’s where futures come in.
When you purchase a futures contract, you are basically signing a contract to purchase something at a later date, at a specific price. For example, let’s say you’re a Bitcoin miner and you generate income by mining Bitcoins and selling them on the market. While you could estimate the amount of Bitcoins you’ll be able to mine each month, it’s hard to estimate how much USD you’ll be able to get for them since Bitcoin is pretty volatile.
In this case, you may want to sell Bitcoin futures contracts stating you’re willing to sell X amount of Bitcoins at a rate of Y on the 1st of the month. When the 1st of the month arrives you’ll settle this contract with your counterparty and receive your money.
Futures contracts can be settled by actual physical delivery of the product or through cash settlement. Physical delivery means that I will send the Bitcoins to my counter-party and he will pay me the amount stated in the contract. Cash settlement means we’ll figure out how much these Bitcoins are worth at the time the contract expires.
If this amount is greater than the contract amount it means I lost potential income, so I will send my counter-party the cash equivalent of this difference. On the other hand, if the price dropped, this means I protected myself from potential loss and that my counter-party lost money. He will then send me the cash equivalent of this difference. In any case, the Bitcoins never trade hands, only cash does.
The main benefit is that I had certainty about how much fiat currency I’ll earn at the end of the month.
A Contract for Difference ,or CFD for short, is very similar to a future. With a CFD, the buyer and seller agree to pay any difference as prices rise or fall in cash, instead of through the delivery of physical goods.
A Bitcoin CFD allows an investor to tap into the benefits and risks of Bitcoin trading without having to physically own the coin itself.
Let’s go back to our previous example to see how this works.
Let’s assume that you are very confident that Bitcoin’s price will rise in the near future and you want to invest in Bitcoin. While you could go out and purchase Bitcoin, that might be too complicated, especially if you don’t have a verified account on any Bitcoin exchange.
So instead of buying actual Bitcoins, or even a futures contract that would require the future delivery of the Bitcoin, you could purchase a Bitcoin CFD.
In this arrangement, you and the seller of the contract would agree to settle any rise or drop in prices in cash when the contract is terminated. If your intuition about Bitcoin’s price rising turns out to be correct, you will be paid the difference between the current price and the price when the contract was purchased by the seller.
On the other hand, if your intuition turns out to be incorrect and prices don’t go as you expected, you will have to pay the difference. In a certain sense, this is essentially betting on whether or not prices will rise or drop.
Because of how simple it is to execute a CFD trade, Contracts for Difference are very popular among traders and numerous different brokerage firms.
CFDs and futures sound very similar, and many new traders believe they are completely identical. However, there are some differences between the two products:
To start with, while futures have a specific expiration date, CFDs don’t. A CFD can be kept for as long as the terms of the contract allow, and there’s no need to settle it on a specific date. When the CFD is liquidated, the difference in price will be calculated and paid to the appropriate party.
CFDs are also easier to conduct and have a lower barrier to entry than futures. In general, futures tend to trade on large exchanges and have a higher minimum commitment, since these contracts are meant to be used by institutional investors.
Additionally, futures trade on open markets where the orderbook is visible to all. This allows traders to spot more opportunities in the market. With CFDs on the other hand, you’re trading against a single broker and there’s only his price available for trading.
Another difference is that CFDs have larger spreads than futures. This means that the difference between the “instant buy” and “instant sell” price is bigger (this reflects the broker’s profit). However, CFDs also often charge lower fees for their operation than futures.
Finally, it’s usually much easier to open a CFD account than a futures account. In general, there is less regulation around contracts for difference, and you can start trading with much less capital.
eToro is one of the biggest players in the cryptocurrency market. Aside from its cryptocurrency exchange, eToroX, eToro also allows you to either directly buy cryptocurrencies or trade cryptocurrency CFDs.
eToro will supply you with a demo account with $100,000 so you can practice your trades before going live. You can read my complete eToro review here.
US users: CFDs are not available to US users. US users can only trade (long) real assets without leverage
Binance Futures launched in September 2019 as an extension of one of the world’s most popular cryptocurrency exchanges, Binance.
Binance Futures offers futures trading for Bitcoin and more than twenty popular altcoins, with leverage of up to 125x. The platform is accessible to most countries around the world, however it does not permit traders from the United States.
Plus500 has been in the CFD business since 2008. They are registered in the UK and licensed by the Financial Conduct Authority (FRN 509902).
The company offers CFD trading in forex, stock indices, individual equities, commodities, cryptocurrencies, ETFs and options. Plus500 was the first broker to introduce a Bitcoin CFD (2013). The company does not charge commissions on any of its trades.
Kraken Futures is licensed by the Financial Conduct Authority (FCA), the UK’s primary financial regulatory body. Futures on Kraken allow you to take positions with up to 50x leverage. You can read my complete Kraken review here.
OKEx was founded in 2017 and is based in Malta. It offers a robust trading platform, and is among the top exchanges in trading volume, with high liquidity across many trading pairs.
The exchange offers multiple options for futures contracts. The contracts are priced in leading cryptos such as Bitcoin, Ethereum, Ripple, and Litecoin, as well as in Tether. OKEx also provides traders with perpetual swap contracts, which have no expiry or settlement date, unlike traditional futures contracts.
Chicago Mercantile Exchange (CME) Group owns large derivatives, options and futures exchanges in Chicago and New York City using its CME Globex trading platforms.
In late 2017 the company started offering Bitcoin futures trading.
The trading and clearing of Bitcoin futures are regulated by the Commodity Futures Trading Commission (CFTC), the regulatory body with exclusive jurisdiction over US Bitcoin futures markets.
Saxo Markets is part of Saxo Bank, a Danish investment known for its large suite of online trading products. It offers CFD trading for a wide range of assets, including Bitcoin.
The Bitcoin CFDs provided by Saxo Markets are derived from exchange-traded products around the world that track the price of Bitcoin, rather than tracking Bitcoin directly. Although this is a small difference, some may find it more inconvenient to trade as they are priced differently and are not tradable 24/7.
Are futures traded 24 hours?
Trading hours for futures contracts vary from platform to platform. Most cryptocurrency-focused exchanges have futures markets which operate 24 hours a day, 7 days a week.
Large institutional futures markets such as those offered by CME, however, can only be traded from Sunday evening until the close of the stock market Friday afternoon.
What time do CME futures close?
Trading hours for CME Bitcoin futures are:
Sunday – Friday 6:00 pm – 5:00 pm EST with a 60-minute break each day beginning at 5:00 pm EST.
While CFDs and futures are very much alike, it’s important to know the differences between these two products. Additionally, both of these products are extremely risky and are only suitable for experienced traders.
If you’re just starting out with trading, I suggest avoiding CFDs and futures until you feel more comfortable with the different terminology and market movements.
Have you had any experience with Bitcoin CFDs or futures? I’d love to hear about it in the comment section below.