Crypto Trading #5 – Why Trade Bitcoin Futures? – JB Trader

This is the first of several videos on understanding what Bitcoin Futures are and why people trade them. One way to hedge my cryptocurrency positions is by trading the Futures market which is a regulated asset.

Hello everyone and welcome to Crypto Trading this is JB Trader and I just want to start off our talk today with a quick question.

How did you guys feel when Bitcoin dropped from like 19,000 like 12,500?

Are you scared angry but you punch a hole in the wall? What do most people do when the price falls?

Most people sell they get scared, they panic, they don’t want to lose all the gains that they’ve got, so they sell. What do most people do when the price goes up?

Most people buy, they see grain they don’t want to miss out they want to get in on all this money being made by everyone else.

But I was taught that you’re supposed to buy low and sell high.

So why are we doing the opposite at the moment? Again it comes down to having a trading plan before you begin any trade or enter into any position or investment.

You have to know exactly what you’re gonna do if the price goes up if the price continues to go sideways and stay in a range or if the price continues to fall and go down.

You can’t think about it at the moment as it’s happening, you got to take your emotions out of it because you’re not going to make very sound wise decisions.

When your money is on the line and you’re panicking and everyone’s in your ear saying “Look at that Bitcoin look how much it’s gone down lose a lot of money huh”.

Just like just take emotion out of it. Make a trading plan execute it to follow your rules and stick to it no matter what.

Alright, now for people who don’t want the volatility of owning Bitcoin right now they’re kind of entering into the Bitcoin futures market. They want that exposure of Bitcoin and the gains and the growth that’s that is having.

But they don’t want to own it they don’t want to set up wallets and worry about security and private keys. And this and that they just want to trade something that’s regulated and that they can go through their broker with, so they trade Bitcoin futures.

Now with Bitcoin futures while futures, in general, it deals in contracts so it’s a contract between 2 parties that makes an agreement to buy and sell something at an agreed-upon price for a specific date.

So, for example, typically features are done by farmers people in agriculture or if they have like a cash position in something their livestock their we corn and different things grains.

You know it’s kind of a hedge against their position because anything can happen with their crops and so they would kind of want to lock in a price today where they can still profit no matter what.

And then people like me that are traders. We’re just speculators I’m not trying to take possession of any physical asset I just want to buy low and sell high and make a profit in between.

Now it’s interesting because not too long ago I visited a friend of mine in the Midwest and he’s a farmer and he’s got like hundreds of acres of actual corn. And when I went and visited and saw his huge trucks and these big things he’s loading tons and tons of corn in it was just amazing to actually see people with the physical product.

And, of course, he trades futures but he does it through a trader he doesn’t do it himself directly and my husband and I at that time we’re curious we kind of looked at a corn futures chart.

And when we looked at it we were like Woah it’s according to our analysis on this chart. It’s looking a little overbought and once it gets to this particular price coming up there’s a very high probability that price could turn and go down.

So he told our friend that and we asked him to say hey just talk to your trader you know your guy and talk to him about it and see what he says and this is just what we see.

So awhile later after that, we caught up with him. And we saw at the chart that price actually did turn at that price point and fall pretty hard and we asked him did you sell your corn or do sell some futures contracts at that price.

And he was like no I didn’t I’m kind of hurting real bad right now and the price is really low and I was just like no.

But so it’s very very important to do technical analysis as much as you can. But that’s just the interesting part about futures it’s not it does not just number for us speculators. I mean it is kind of but this is real life, people you know that are really trying to hedge something that they’re growing and producing.

So the CME offered Bitcoin futures around December 18th and for people who want to trade the futures. You just have to kind of know a few specs like the maintenance margin for it is about 43% of the value of how many contracts you’re trying to trade.

Keep in mind that because Bitcoin futures is so volatile right now that depending on the volatility and the number of contracts that you’re trying to trade the CME can raise the margin requirement at the drop of a hat and it can change at any moment.

So right now a Bitcoin futures contract consists of 5 Bitcoin and each Bitcoin is priced at $5 so each contract is $25 so every tick value up or down is going to be $25.

And so you just have to keep that in mind also some people are scared because of the vast price fluctuations in the Bitcoin features.

So they put in some limits so they put in a 7% soft limit a 13% soft limit and a 20% hard limit. What that means is that if the Bitcoin futures price goes 7% above or below the prior day settlement price.

There’ll be a halt in trading for about 2 minutes. Within that 2 minutes it’ll kind of be like pre-market trading you can like you can’t trade buy or sell but you can place orders and cancel orders and modify orders.

So within that 2 minutes once it’s overtrading resumes if the price just kind of comes off of those levels and comes back to a normal range then fine if it continues to fall below that 7% or go higher than that 7%.

And at that point, the soft limit will be at 13%. So again, if it hits 13% to be a 2 minutes halt in trading. After that 2 minute is up there resumed trading again and if it continues to follow the most that they will let it fall for that day is 20%.

Now the only day that that 20% hard limit rule is in effect. Isn’t in effect, I’m sorry, is on the last day of trading the settlement day of trading. So just be aware of that and know everything that goes into trading their futures.

And the most you can trade is 1000, it’s 1000 contracts for spot Bitcoin futures. So keep that in mind as well.

Now if you don’t want futures or if you want to add in addition to futures they also have Bitcoin options for you options traders out there.

So there’s a lot of speculators that are really expecting Bitcoin to go way higher so they’re buying calls and or if they want it to go away lower they’re buying puts or vice-versa they might be selling calls and selling puts and taking in premium.

Premium right now is super expensive is one of the most expensive things right now. So just budget for that, so just keep track of your margin know your risk tolerance and follow your plan before you enter into a position.

All right, happy trading JB traders signing off and I will talk to you soon.

Peace out!

 

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