CME Ethereum Futures Work

Ethereum futures is an agreement of two sides about selling or acquisition of the cryptocurrency at a specific date and time at a specific cost. Futures have been a usual thing in the world of investment for many years. Recently, they have entered the digital currency industry too. Here is a Beginner-Friendly Guide on How Do CME Ethereum Futures Work?

The peculiarity of futures is that after the expiration of the date specified in the agreement, the digital coins are acquired/sold at a given price, despite changes in the market rate. Each such agreement is made for a specific number of coins.

Ethereum futures give the opportunity to speculate on the estimated price of a coin without owning it. The essence of operation is very common to that of traditional investment assets. A trader can go long if he expects Ethereum to rise. If ETH is already there and the rate is about to fall, one takes a “short” position to mitigate potential losses (hedging).

First among the benefits of Ethereum futures for US users is the ability to trade them on the CME regulated exchange. This is a good option for those who bother about the legality of working with crypto exchanges. Another important advantage is that you can make money on changes in Ethereum price without the need to store coins.

What are futures for?

Futures are used to make money on speculation and hedging. Speculation is making a profit from rate changes, while hedging is reducing the risks associated with volatility.

When hedging, a trader takes a position that would compensate for the loss in the case of a sharp rate drop. Thus, one keeps a balance between profit and loss. Speculation means that the trader’s main goal is to generate income from bets in the direction of the coin rate.

The first crypto futures were launched back in December 2017, right at the peak of the previous bull market. Naturally, they were launched on Bitcoin. And now, more than 3 years later, a similar trading instrument is possible for Ethereum. If you wish to transfer BTC to ETH to start trading in the new futures option, you can do it in just a couple of clicks using the anonymous and convenient Godex platform.

Kinds of futures contracts

  • Deliverable Futures Contract

This is an agreement according to which the buyer is obliged to buy, while the seller is obliged to give the specified number of coins after expiration. The cost of delivery is the one that was set at the last moment of trading. If the buyer does not receive assets on time, then the exchange imposes fines.

  • Cash Settled Futures

This is a financial tool that does not involve the transfer of cryptocurrency directly. It is applied for speculative purposes only. The calculation is carried out in relation to the difference between the value specified in the agreement and the real one, at the time of the expiration date.

Both options have common features. Their parameters are indicated in the contract specification set by the exchange. Both parties are liable to the exchange up to the expiration of the futures expiration date.

How Ethereum futures contracts work

Ethereum futures represents a commitment to sell or buy ETH in the future. Here’s an example of how it works. Suppose the current Ethereum rate is $1,500. The trader believes the price will increase to $2,000 in the future. He buys perpetual or quarterly contracts waiting for the rate growth. Thus, he acquires the obligation to buy ETH at the market price by the moment of the expiration of the contract.

If the rate reaches the level set by the trader, he will profit from the sale of contracts (he can also hold the perpetual futures for some time if it is obvious that the price will rise further). However, if the rate has not reached the target and fell below the purchase price, the trader loses.

You can buy and sell Ethereum futures at any time and make money on both downtrends and uptrends.

How to trade Ethereum futures on CME

If you wish to trade Ether futures on CME, there are two ways you can consider. The first is you contact a registered futures broker and create an account. After the registration is completed, you can start the actual trading. All you need to do is tell your broker the number of contracts you wish to sell or buy. Also, you will need to choose an expiry month. The second option is trading on CME without intermediaries through CME direct. 

388 contracts were opened on CME on the first day after the launch of Ethereum futures. The total trading volume reached 19,400 ETH ($33 million). Representatives of the Chicago stock exchange claimed that the demand for the new derivative was overwhelming.