What is the Best Way to Trade Bitcoin Futures?
Dom Farnell
Co-Founder
Dom is a Co-Founder and of TIC. A passionate investor and seasoned blog writer with a keen interest in financial markets and wealth management.My goal is to empower individuals to make informed investment decisions through informative and engaging content.
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Please keep in mind that Crypto assets are volatile and currently unregulated. This volatility presents risk to your investment, and you may lose your funds. Profits from Cryptocurrency sales may be subject to Capital gains tax under UK law. To trade futures in the UK, you will not find legally a UK regulated exchange. Off shore exchanges may offer these services but they will not be FCA regulated so please act with caution.
Quick Answer: How Can you Trade Bitcoin Futures in the UK?
Page Contents:
- Bitcoin Futures Trading Platform Comparison Chart
- Introduction to Bitcoin Futures
- Understanding the Basics of Futures Trading
- The Role of Major Exchanges in the UK’s Bitcoin Futures Landscape
- How to Trade Bitcoin Futures: A Step-by-Step Guide
- Risks and Risk Management in Futures Trading
- Advanced Concepts in Futures Trading
- Choosing the Right Platform for Trading Bitcoin Futures
- References
- FAQs
Bitcoin Futures Trading Platform Comparison Chart
MEXC | 
OKX | 
Coinbase | |
Spot Trading Fees | 0.1% for some pairs, Zero fees for selected pairs | 0.08% for makers, 0.10% for takers | Varied fees based on pricing tiers |
Futures Trading Fees | 0.01% for makers, 0.05% for takers | 0.02% for makers, 0.05% for takers | Not applicable |
Leverage | Up to 200x | Up to 100x on futures, 10x on spot trades | No |
Number of Coins | 1,520+ cryptocurrencies | 320+ tradable cryptocurrencies | Extensive range, exact number varies |
User Base | Info not found | Over 20 million users worldwide | Large global presence |
Deposit Methods | Crypto, Visa/Mastercard, Bank Transfer, etc. | Crypto deposits; Fiat not supported directly | Bank transfers, Debit/Credit cards |
Withdrawal Fees | No fiat withdrawals | Competitive crypto withdrawal fees | Varies by asset and method |
Security | High, with cold storage for assets | Proof of Reserves (PoR) report, $14.5 billion in assets | High, adheres to U.S. regulations |
Regulation | Unregulated in most jurisdictions | Largely unregulated in major markets | Heavily regulated, U.S.-based |
User Experience | Versatile platform for all levels | User-friendly, suitable for beginners and pros | Known for trustworthiness, user ed. |
Special Features | Copy Trading, Token Launchpad | Spot Copy Trading across 120 spot pairs, Smart Account feature | Crypto educational courses |
Geographical Availability | Almost every country | 160+ countries, not available in North America | Global, focus on the U.S. market |
Introduction to Bitcoin Futures
In the rapidly evolving world of cryptocurrency, Bitcoin futures have emerged as a cornerstone of the trading landscape, offering investors a sophisticated tool to hedge against market volatility or to speculate on price movements. As digital currencies continue to shape the future of finance, understanding Bitcoin futures becomes crucial for both seasoned traders and newcomers alike.
in layman’s terms?
Bitcoin futures are essentially agreements to buy or sell Bitcoin at a predetermined price at a specific future date, allowing investors to lock in a price for the digital asset without having to hold the actual cryptocurrency. This financial instrument has been pivotal in integrating the cryptocurrency market with traditional financial markets, providing a bridge for institutional investors and bringing a level of legitimacy and stability to Bitcoin.
The introduction of Bitcoin futures contracts on major exchanges was a landmark moment in the history of cryptocurrency trading. It signaled a growing acceptance of digital currencies by traditional financial institutions and provided a new avenue for investors to gain exposure to Bitcoin without the complexities of managing digital wallets and navigating the nuances of the spot cryptocurrency market.
Futures trading, in the context of Bitcoin, is not markedly different from futures trading in traditional financial markets. It involves a legal agreement to buy or sell the asset at a future date, but with Bitcoin futures, the underlying asset is digital rather than physical. Cryptocurrency futures trading further expands this concept, encompassing not just Bitcoin but other digital currencies as well, thereby offering a broader spectrum of trading opportunities in the digital age.
The significance of Bitcoin futures extends beyond mere trading. They serve as a critical tool for price discovery, providing insights into market expectations about future Bitcoin prices. Moreover, they offer a way for investors to hedge against their crypto holdings, protecting against price swings in a notoriously volatile market.
Understanding the Basics of Futures Trading
The world of futures trading offers a fascinating avenue for investors to speculate on or hedge against the future values of commodities, currencies, and even cryptocurrencies. But before diving into this market, it’s essential to grasp some fundamental concepts.
What are Futures Contracts?
Futures Contract: A legal agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.
Futures Contracts Basics: These contracts are standardized in terms of quantity, quality, and delivery time for the traded instrument, making them easily tradable on futures exchanges.
Futures trading operates on the principle of betting on the future price movements of an asset. Traders use futures to hedge against price changes or to speculate, hoping to profit from the price difference between the contract price and the actual price at the contract’s expiration.
Types of Futures
The futures market is diverse, catering to various interests and industries:
Commodity Futures: Contracts based on physical goods like oil, gold, or agricultural products. These are regulated by the Commodity Futures Trading Commission (CFTC) in the United States.
Cryptocurrency Futures: These contracts are based on the future price of cryptocurrencies like Bitcoin (Bitcoin futures) or Ethereum (crypto futures), allowing investors to speculate on digital currencies without owning them.
Key Players in the Futures Market
Futures Commission Merchant (FCM): A firm that accepts orders to buy or sell futures contracts and holds funds deposited by clients to cover these positions.
Introducing Broker (IB): An agent or broker who facilitates the introduction of clients to FCMs, often providing additional services like advice or research.
Understanding these basics equips investors with the knowledge needed to navigate the complexities of the futures market, whether they’re interested in traditional commodities or the evolving world of cryptocurrency futures.
The Role of Major Exchanges in the UK's Bitcoin Futures Landscape
In the United Kingdom, the landscape of Bitcoin futures trading is notably distinct, shaped by regulatory frameworks and the presence of international exchanges that cater to UK investors, albeit with certain limitations.
Navigating UK Regulations
FCA’s Stance on Futures Trading: The Financial Conduct Authority (FCA), the regulatory body overseeing financial markets in the UK, has imposed a ban on the sale of crypto-derivatives, including Bitcoin futures, to retail consumers. This move, aimed at protecting consumers from the high risks associated with these products, significantly impacts how UK investors engage with the Bitcoin futures market.
Trading Through International Exchanges: Despite the FCA’s ban, UK investors can still participate in Bitcoin futures markets through international platforms. However, these platforms, including MEXC, operate outside of FCA regulation, presenting a higher risk profile and lacking the consumer protection typically afforded by FCA-regulated entities.
The Importance of Due Diligence
For UK investors looking to trade Bitcoin futures through international exchanges, due diligence becomes paramount:
Understanding Regulatory Risks: Trading on platforms not regulated by the FCA, such as MEXC, requires a thorough understanding of the risks involved, including the lack of recourse in the event of disputes or losses.
Seeking Regulated Alternatives: Investors are encouraged to explore alternatives that comply with UK regulations, such as trading Bitcoin futures on regulated exchanges that accept UK clients and adhere to international regulatory standards.
The Broader Context of Cryptocurrency Derivatives
Ether Futures and Crypto Options: Beyond Bitcoin futures, there’s a growing interest among UK investors in other cryptocurrency derivatives, such as Ether futures and crypto options. These products offer additional ways to gain exposure to the cryptocurrency market, albeit with similar regulatory considerations and risks.
Perpetual Futures: Another area of interest is perpetual futures, a type of derivative common in the cryptocurrency market that does not have an expiry date. While offering continuous exposure to price movements, these instruments also fall under the scrutiny of regulatory bodies and highlight the need for investor caution.
For UK investors, the role of major exchanges in the Bitcoin futures market is nuanced by regulatory constraints. The FCA’s ban on crypto-derivatives to retail consumers underscores the importance of cautious engagement with the market, especially when considering platforms not regulated by the FCA. As the landscape evolves, staying informed about regulatory changes and understanding the risks associated with unregulated exchanges remain crucial for those looking to navigate the complexities of Bitcoin futures and other cryptocurrency derivatives.
How to Trade Bitcoin Futures: A Step-by-Step Guide
Trading Bitcoin futures requires a comprehensive approach, from selecting the right brokerage to understanding complex financial concepts. Here’s how to start:
Selecting a Brokerage Firm
Research: Look for a brokerage firm with a solid reputation, robust security measures, and transparent fees. Ensure it offers Bitcoin futures trading and is regulated by a reputable authority.
Account Setup: Complete the registration process, which typically includes identity verification and financial assessment to ensure you understand the risks involved.
Setting Up a Digital Wallet
While not always necessary for trading Bitcoin futures, having a digital wallet can be essential for transactions on platforms that require settlement in actual Bitcoin rather than cash.
Choose Wisely: Opt for a wallet with strong security features and a user-friendly interface.
Understanding Margin Requirements
Initial Margin: This is the upfront payment required to open a position. It’s a percentage of the contract’s value and varies by brokerage.
Maintenance Margin: This is the minimum account balance you need to maintain. If your balance falls below this, you’ll need to deposit more funds to avoid liquidation.
Trading and Pricing
Bitcoin Reference Rate: Familiarize yourself with the reference rate used by your chosen platform. It’s crucial for determining contract prices.
Spot Price Significance: Understanding the current market price of Bitcoin is essential for making informed trading decisions.
Trade Execution: Decide on a trading strategy, whether it’s hedging or speculation. Place your orders accordingly, specifying the type (e.g., limit, market) and size.
Settlement Methods: Know whether your contracts are cash-settled or require physical delivery of Bitcoin upon expiration. Most are cash-settled, simplifying the process.
Risks and Risk Management in Futures Trading
Trading Bitcoin futures is not without its challenges. Recognizing and mitigating risks is crucial for success.
Understanding the Risks
Market Volatility: Bitcoin’s price can fluctuate wildly, affecting the value of futures contracts.
Leverage: While it can amplify gains, leverage also increases the potential for significant losses.
Notional Value: This is the total value of a leveraged position’s assets. A high notional value can mean greater risk.
Implementing Risk Management Strategies
Position Limits: Set limits on the number of contracts you can hold, reducing exposure to high volatility.
Price Limits: Use stop-loss orders to limit potential losses if the market moves against your position.
Contract Selection: Choose between monthly contracts for short-term strategies or longer-term contracts for extended exposure.
Risk management in futures trading involves a disciplined approach to monitoring market movements, understanding the implications of leverage, and using tools like position and price limits effectively. By carefully planning your strategy and adhering to these principles, you can navigate the complexities of Bitcoin futures trading while aiming to minimize losses and maximize potential gains.
Advanced Concepts in Futures Trading
As traders become more comfortable with the basics of Bitcoin futures, understanding advanced concepts is crucial for leveraging these financial instruments effectively.
Key Features of Bitcoin Futures Contracts
Expiry Date: Each futures contract has a predetermined expiry date, which is crucial for strategy planning. Traders must decide whether to hold their position until expiration or to close it beforehand.
Settlement Method: Bitcoin futures can be settled in two ways:
Physically Settled: Requires the actual delivery of Bitcoin upon contract expiration.
Financially Settled: Involves cash payment based on the price difference between the contract’s opening and closing prices, without the physical exchange of Bitcoin.
Leverage: Leverage allows traders to control large positions with a relatively small amount of capital. While it can magnify profits, it also increases the risk of significant losses.
Understanding Trading Terms
Trading Day: Refers to a day on which the exchanges are open for trading. Knowing the trading hours is essential for timely decision-making.
Gain Exposure: Futures contracts allow investors to gain exposure to Bitcoin’s price movements without owning the actual cryptocurrency, offering a way to speculate or hedge.
Market Regulations: Regulatory bodies like the Commodity Futures Trading Commission (CFTC) play a critical role in overseeing futures markets, ensuring transparency and protecting investors from fraud.
Choosing the Right Platform for Trading Bitcoin Futures
Selecting an appropriate trading platform is fundamental to your success in Bitcoin futures trading.
Criteria for Selection
Regulatory Body Compliance: Opt for platforms regulated by reputable authorities to ensure consumer protection and market integrity.
Trading Volumes: High trading volumes indicate a liquid market, making it easier to enter and exit positions.
Broker Services: Evaluate the services offered by brokers, including trading tools, educational resources, and customer support.
Exercising Caution
Unregulated Platforms: Platforms like MEXC, which are not regulated by authorities such as the FCA, pose higher risks due to the lack of consumer protection mechanisms.
Due Diligence: Assess a platform’s security measures, margin requirements, and fee structures. Transparency in these areas is a good indicator of reliability.
References
FAQs
A Bitcoin futures contract is a standardized agreement to buy or sell a specific amount of Bitcoin at a predetermined price on a set future date. These contracts are traded on futures exchanges and can be settled in cash or the underlying asset, depending on the terms of the contract.
Cash settlement in Bitcoin futures contracts means that, upon the contract’s expiration, the buyer or seller receives the difference between the contract price and the actual market price of Bitcoin in cash, rather than receiving physical Bitcoins. This method is commonly used for Bitcoin futures on platforms like the Chicago Mercantile Exchange (CME).
Trading Bitcoin futures on the Chicago Mercantile Exchange (CME) offers traders a regulated and secure environment with high liquidity. The CME is one of the world’s leading futures and options markets, providing a transparent and accessible market for trading cryptocurrency futures among other financial instruments.
Before engaging in futures trades, especially with cryptocurrency futures, consider the volatility of the market, the platform’s regulatory status, and your own risk tolerance. Cryptocurrencies are considered a risky asset class due to their price fluctuations. Ensure you have a solid trading strategy and understand the process to execute trades effectively.
Bitcoin ETFs (Exchange-Traded Funds) can provide a more accessible way to gain exposure to Bitcoin’s price movements without the complexities of direct futures trading. While ETFs may offer a lower risk profile by being diversified and managed by professionals, they still represent a risky asset class and can experience significant price volatility. Always assess your investment goals and risk tolerance before investing.
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Epilogue
He has over a decade experience in finance and holds Chartered Status in the financial industry, Thomas’s specialty is trading CFDs, Forex and Day Trading.
His crypto portfolio is heavily weighted towards Bitcoin and Ethereum, but enjoys trading low cap crypto’s with higher volatility. Thomas’s favourite trading strategy is break out Trading.
How This Content Was Created: Our assessment of the the crypto trading of futures is rooted in rigorous research and firsthand experience. Here’s our methodology:
Platform Testing: We actively tested multiple platforms over a span of six months, analysing their functionalities, ease of use, and reliability.
Fee Analysis: Each platform’s fee structure was dissected to ascertain its competitiveness in the market.
User Feedback: We engaged with real users and considered their reviews and experiences, lending a holistic perspective to our evaluation.
Market Dynamics: Regular updates from industry news, changing regulations, and market dynamics ensure the guide remains current and reliable.
AI-Assistance: While human judgment and expertise are at the core of our assessments, we utilized AI tools to improve structure, critique our work.
Note: Our use of AI tools is strictly for data gathering and content assistance. All conclusions drawn and recommendations made are based on human analysis and judgment.
Why This Content Was Created: Our primary objective in creating this guide is to empower traders, both seasoned and novices, with impartial, comprehensive, and actionable information to make informed decisions.
We understand the complexity of the stock trading world and aim to simplify it for our readers.
While we hope our content is discoverable by those seeking insights, our main priority is to provide genuine value to our visitors.
We staunchly oppose content creation practices that manipulate search rankings or violate any standards of integrity.