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Webinar: Ethereum Futures from CME Group


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Webinar: Ethereum Futures from CME Group

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 Big Mike 
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Hi guys,

It is my pleasure to welcome David Lerman @ CME Group, sponsored by Ironbeam Futures, for our 411th webinar event, on Thursday, February 4th @ 4:30 PM Eastern US.

The title for the event is "Introducing Ether Futures", and bullet points include:

- The growing cryptocurrency landscape at CME Group
- Benefits of cryptocurrency futures
- Bitcoin & Ether compared
- Free CME Institute classes & courses



Register for this event:
https://on.futures.io/o28tt

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 SMCJB 
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Excellent.

FYI CME released the margin requirements for these contracts this week and it is a staggering 50% of Notional which makes Bitcoin margins (37% of Notional) look low! With a contract size of 50 Ether, and a current price of $1350, it has a Notional Value of $67,500 and a margin requirement of $33,750. (vs Bitcoin which is $171k and $63k respectively).

I find this interesting given that the next largest margin requirements for CME contracts are Palladium $30k, NQ $17k, EMD & Silver $15k, ES $12k and Gold $11k. Why make them so big, especially after the new found success of the micro's. Even the DAX which is the biggest non-crypto contract I know of is only €34k.

https://www.cmegroup.com/notices/clearing/2021/01/Chadv21-045.html

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 jokertrader 
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Good god...I was thinking of trading the Ether futures but this makes it close to impossible except for the big boys. Need to research the margin for spreads on this

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 SMCJB 
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SMCJB View Post
FYI CME released the margin requirements for these contracts this week and it is a staggering 50% of Notional which makes Bitcoin margins (37% of Notional) look low! With a contract size of 50 Ether, and a current price of $1350, it has a Notional Value of $67,500 and a margin requirement of $33,750. (vs Bitcoin which is $171k and $63k respectively).

I find this interesting given that the next largest margin requirements for CME contracts are Palladium $30k, NQ $17k, EMD & Silver $15k, ES $12k and Gold $11k. Why make them so big, especially after the new found success of the micro's. Even the DAX which is the biggest non-crypto contract I know of is only €34k.

https://www.cmegroup.com/notices/clearing/2021/01/Chadv21-045.html

Related CME announced today they are increasing margins on Bitcoin from 36% of Notional (I incorrectly said 37% above) to 42%. With a price of $33.5k that's an increase of $10,050 per contract to $74,550. That really does make this untradeable for anybody but the largest of accounts. Be interesting if we see any liquidation because of this. Rumor is HFs are short Bitcoin futures, with the speculation that they are short futures, versus long actual coins, collecting the yield, which is currently about 8%. The 17% increase in margin requirements (from 36% to 42%) will take more than 30bp out of the yield trade if you have it on. That drop in yield is more than the entire yield of 90 day Libor which is only 17.5bp.

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ycomp
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I'm a bit confused.. the Bitcoin CME futures contract still exists? Was there another Bitcoin futures contract that got eliminated? I thought I saw some news in passing about it

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 SMCJB 
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The CBOE discontinued their Bitcoin futures contract. The CME and ICE contracts are both still trading. The CME volumes are doing quiet well.


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 fivewhy 
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The margin requirements are always made based on historical past moves and what size moves are within certain standard deviations of price movement. The requirement is set to avoid stop outs and credit risk and counterparty risk, yadda yadda. There is no real possibility of lowering the margin requirements.

So the answer is to introduce smaller sized contracts (smaller notional value). I'm guessing a 5 Ether notional value would be more retail friendly....? At $1650, that's a notional of
$8250 and a maintenance margin of $4125 per contract. Still a bit steep in comparison to micros, but FCMs could extend day trade margins like they do w the index contracts and bridge the gap to retail margins. But am I doing my math right?

Final point, between the post title and the webinar title.... Ether ! = Ethereum. Ether is the token, Ethereum is the network. Things other than Ether trade on the Ethereum network. This is a contract for Ether, not Ethereum.

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 Arch 
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SMCJB View Post
Excellent.

FYI CME released the margin requirements for these contracts this week and it is a staggering 50% of Notional which makes Bitcoin margins (37% of Notional) look low! With a contract size of 50 Ether, and a current price of $1350, it has a Notional Value of $67,500 and a margin requirement of $33,750. (vs Bitcoin which is $171k and $63k respectively).

I find this interesting given that the next largest margin requirements for CME contracts are Palladium $30k, NQ $17k, EMD & Silver $15k, ES $12k and Gold $11k. Why make them so big, especially after the new found success of the micro's. Even the DAX which is the biggest non-crypto contract I know of is only €34k.

https://www.cmegroup.com/notices/clearing/2021/01/Chadv21-045.html

Do you think they would create micro ether contracts for lower margin in the future?

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Webinar recording:



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 SMCJB 
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Big Mike View Post
Webinar recording:

Can't watch it until later today?


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 SMCJB 
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Big Mike View Post

Not sure if this is out of the video or not but isn't this exactly how the Crypto 2017 meltdown started? Bitcoin went up, people invested some of their profits in Altcoins, then when Bitcoin went back down, all the Altcoins crashed?

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wait

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 rhatten 
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Contract sizes are just simply TOO big for retail. CME really needs to 'gear down'/ 'step it back' as mentioned above. 1/10th size (5ETH) would be a start. The trade volume would be 20-50X on day 1. Sad.

CME Needs to call Elon Musk to get him to 'sponsor' a DOGE COIN Future built as a Micro product... It would simply close about 10 other futures markets and clean up the 1000's of unnecessary coins... just saying. Someone has to think further out than only offering an "S&P Pit Full sized like" contract on these Cryptos.


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 SMCJB 
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Big Mike View Post
Webinar recording:

Please give us feedback and comments:

I thought it was very interesting and David Lerman did a very good job presenting, highlighting

Couple of points I would make though
  • I think its Proof of Stake not Proof of Status
  • David was obviously a little rusty (and low) on margins. Early in the presentation he said Bitcoin margin started at 37%, implying that as it became more mature it would reduce. It's now 42%. He said that Ether margins would probably be higher than Bitcoin but guessed they would around 30%. He also said margins are not known yet. Margins are actually 50% as announced by the CME last week.
    https://www.cmegroup.com/notices/clearing/2021/01/Chadv21-045.html
  • I believe some of his volatility commentary was incorrect specifically that either the annualized or daily volatility calculation is wrong. Given Ether trades 7 days a week not just 5 days a week shouldn’t annualized volatility be 19.1 (square root of 365) times the daily volatility not 16x. Also, if we assume normal distribution (bad assumption I know) doesn’t a 3 SD move happen once in every 370 trading days, not once in every 200. (Φ(-3) = 0.00135. 2 tails = 0.0027. 1/0.0027 = 370)

Question I wish I could have asked?
  • Why does the CME have spread implieds switched off for crypto currencies. While I know this falls in the equity division (?!?) and that the equity index products don't have implieds switched on, the nature of the products are extremely different. On the day of the presentation (Thursday 4th) 99.8% of ES volume was in the front month, while only 81.9% of the Bitcoin volume was in the front month.


Arch View Post
Do you think they would create micro ether contracts for lower margin in the future?

That was asked in the presentation - while he didn't say no, it was clear there is no immediate plans for them.

Also with regards to 'other cryptos' if you look at CMEs timeline for both Bitcoin and Ether they launched their 'reference rate' at least a year (even two?) before the actual contract. Since they currently don't have a reference rate for any other crypto's I would speculate that there are no new ones coming in the near future.


rhatten View Post
Contract sizes are just simply TOO big for retail. CME really needs to 'gear down'/ 'step it back' as mentioned above. 1/10th size (5ETH) would be a start. The trade volume would be 20-50X on day 1. Sad.

While I wish they were smaller as well, I think the size was dictated by the fact that people will spread these versus the Bitcoin contract. Currently you would need to do that on an approximate 2:1 basis. If they made it 1/10th the size it would be a 22:1 basis.

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 Arch 
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I think it would be a no brainer to add e-mini and e-micro bitcoin and ether futures. Demand would be sky high.

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 fivewhy 
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Arch View Post
I think it would be a no brainer to add e-mini and e-micro bitcoin and ether futures. Demand would be sky high.

I assure you that everyone knows this. That's not what's stopping it. What's stopping it is getting market makers on board. Market makers are necessary to close the bid ask spread. Retailers alone, no matter how much demand they may represent, won't do it. And the crypto space just isn't aged enough for most market makers.

At least, that's my opinion. I would like to believe this is true. If I'm wrong, I invite anyone to explain why. Because I would like to know. Until then, this is what I will believe.


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 Big Mike 
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Record $6.5B futures open interest signals traders are bullish on Ethereum
The open interest on Ethereum futures hit a record $6.5 billion as ETH rallied to $1,750 and traders increased their leverage.


https://cointelegraph.com/news/record-6-5b-futures-open-interest-signals-traders-are-bullish-on-ethereum?utm_source=Telegram&utm_medium=social

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 SMCJB 
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Arch View Post
I think it would be a no brainer to add e-mini and e-micro bitcoin and ether futures. Demand would be sky high.


fivewhy View Post
I assure you that everyone knows this. That's not what's stopping it. What's stopping it is getting market makers on board. Market makers are necessary to close the bid ask spread. Retailers alone, no matter how much demand they may represent, won't do it. And the crypto space just isn't aged enough for most market makers.

At least, that's my opinion. I would like to believe this is true. If I'm wrong, I invite anyone to explain why. Because I would like to know. Until then, this is what I will believe.

While he didn't say it explicitly in the presentation I got the impression that making the contract large was done intentionally to reduce excessive speculation. I believe the question of market makers is moot. They have them in the large contract, there would be even more in a smaller contract. Anybody with access to both the cash and futures could try and make a market/arbitrage it. Trading Technologies allows you to do this. I have access to the Coinbase, BitMEX, and Deribit Crypto exchanges, and of course the CME and ICE Bitcoin futures. So Spreading any of these is as easy as spreading two CL futures contracts.


Big Mike View Post
Record $6.5B futures open interest signals traders are bullish on Ethereum
The open interest on Ethereum futures hit a record $6.5 billion as ETH rallied to $1,750 and traders increased their leverage.


https://cointelegraph.com/news/record-6-5b-futures-open-interest-signals-traders-are-bullish-on-ethereum?utm_source=Telegram&utm_medium=social

That's kind of misleading. OI is normally discussed in contracts not Notional.

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 fivewhy 
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SMCJB View Post
While he didn't say it explicitly in the presentation I got the impression that making the contract large was done intentionally to reduce excessive speculation. I believe the question of market makers is moot. They have them in the large contract, there would be even more in a smaller contract. Anybody with access to both the cash and futures could try and make a market/arbitrage it. Trading Technologies allows you to do this. I have access to the Coinbase, BitMEX, and Deribit Crypto exchanges, and of course the CME and ICE Bitcoin futures. So Spreading any of these is as easy as spreading two CL futures contracts.

I see what you are saying, those are good points and I agree with you. Thanks!

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 SMCJB 
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In case anybody is interested, and still reading this, I ran some Margin Scenarios for COB 2/9

BTC H1 ($241,925 Notional) ~ $101,123 Initial Margin
BTC H1-J1 Spread ($3,425 Notional) ~ $3,630 Initial Margin

ETH H1 (91,825 Notional) ~ $45,454 Initial Margin
ETH H1-J1 Spread ($675 Notional) ~ $1,433 Initial Margin

BTC H1 - ETH H1 1:1 Spread ($150,100 Notional) ~ $107,000 Initial Margin ie benefiting from $39,577 in offsets
BTC H1 - ETH H1 1:2 Spread ($58,275 Notional) ~ $112,866 Initial Margin ie benefiting from $85,031 in offsets
BTC H1 - ETH H1 1:3 Spread ($33,550 Notional) ~ $118,743 Initial Margin ie benefiting from $130,485 in offsets

Question for somebody who actually trades cash crypto's (not futures). Can you trade the BTC:ETH, ie be long one and short the other, if so how do they margin that?

@Big Mike, @jokertrader, @TheShrike

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 Big Mike 
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Yes, there are cross margin and isolated margin options at Binance.

I haven't looked at that with FTX but I imagine it's the same.

If you have a wallet, you can "open" an account at FTX in a couple minutes and transfer in a tiny bit of money to play.

SMCJB View Post
In case anybody is interested, and still reading this, I ran some Margin Scenarios for COB 2/9

BTC H1 ($241,925 Notional) ~ $101,123 Initial Margin
BTC H1-J1 Spread ($3,425 Notional) ~ $3,630 Initial Margin

ETH H1 (91,825 Notional) ~ $45,454 Initial Margin
ETH H1-J1 Spread ($675 Notional) ~ $1,433 Initial Margin

BTC H1 - ETH H1 1:1 Spread ($150,100 Notional) ~ $107,000 Initial Margin ie benefiting from $39,577 in offsets
BTC H1 - ETH H1 1:2 Spread ($58,275 Notional) ~ $112,866 Initial Margin ie benefiting from $85,031 in offsets
BTC H1 - ETH H1 1:3 Spread ($33,550 Notional) ~ $118,743 Initial Margin ie benefiting from $130,485 in offsets

Question for somebody who actually trades cash crypto's (not futures). Can you trade the BTC:ETH, ie be long one and short the other, if so how do they margin that?

@Big Mike, @jokertrader, @TheShrike

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 SMCJB 
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Thanks @Big Mike. Trading the futures but havent taken the cash plunge yet.


SMCJB View Post
In case anybody is interested, and still reading this, I ran some Margin Scenarios for COB 2/9

BTC H1 ($241,925 Notional) ~ $101,123 Initial Margin
BTC H1-J1 Spread ($3,425 Notional) ~ $3,630 Initial Margin

For Comparison, ICE Margin COB 2/9
BTM H1 $15,750 so 5 coins would be $78,750 vs $101,123 on CME.
BTM H1-J1 Spread $2,604 so 5 coins would be $13,020 vs $3,630 on CME.
So trade outrights on ICE but Spreads on CME!

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 Big Mike 
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Those margins are insane, and the reason everyone is trading spot.

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 jokertrader 
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I think the pair is ETH/BTC ..have never traded it as I'm only HODLing and exchanging/storing 1 coin
I would think this would pertain to someone who trades the perpetual pairs with or without leverage even upto 100x
I believe there are some youtube videos on margining but this is more of a question for non US people I would think

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 Big Mike 
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Excuse the ugly chart, on my phone.


Screenshot_20210210-000724

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 SMCJB 
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Big Mike View Post
Those margins are insane, and the reason everyone is trading spot.

Coinbase and Gemini both don't allow margin trading. So their margins are more than double. Where else can an America trade spot at better margin rates (and not get killed on fees)?

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 SMCJB 
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Re: ETH:BTC I understand that you can trade it. My question is, as an American, lets say I have ample USD in my account, can I trade the ETH:BTC spread, or as @jokertrader said, can you only use it to move back and forth from one coin to the other - ie you are always net long?

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 Big Mike 
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Try binance.us

I have Binance, but know they have the .us domain too.

I'm not the best to answer what.
SMCJB View Post
Coinbase and Gemini both don't allow margin trading. So their margins are more than double. Where else can an America trade spot at better margin rates (and not get killed on fees)?

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 Big Mike 
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One thing I love about FTX is I can trade without conversion, from any stablecoin. Binance makes you convert or transfer and jump through hoops, but FTX it's painless.

Also saves gas fees.

I'm learning this stuff too. Hit me up in the Crypto 101 thread I created and I'll share screenshots best I can to help.
SMCJB View Post
Re: ETH:BTC I understand that you can trade it. My question is, as an American, lets say I have ample USD in my account, can I trade the ETH:BTC spread, or as @jokertrader said, can you only use it to move back and forth from one coin to the other - ie you are always net long?

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geistflow
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Thanks for sharing the webinar. Futures can already be obscure for the general public, and cryptocurrency can be well...cryptic, so cryptocurrency futures would probably sound like something from the Matrix itself. The slide at 13:05 on the increase of institutional interest in the bitcoin futures was cool.

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 SMCJB 
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Ether Margin Rates dropping from 50% to 44% which with Ether at 3500 is over $10,000 from $87500 to $77000 effective Friday 7th May.

https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2021/05/Chadv21-170.pdf

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