Interactive Brokers believe settling Bitcoin contracts will be difficult due to the high volatility of the cryptocurrency.
Settling Bitcoin futures may turn out more problematic than expected, believes Thomas Petterfy of Interactive Brokers. The CME Group contracts, to be offered in mid-December, may need a special treatment to offset the risk of Bitcoin’s wild swings.
Bitcoin has shown it can lose or regain hundreds of dollars in a few short days or even hours, and that may cause much deeper losses when time comes to settle the futures contracts.
The CME futures product will use 5 BTC as a base unit. Since only a fraction of the price is paid for the futures contract, one contract will cost $25. Calendar Spread and Basis Trade at Index Close (BTIC) will cost $5.
The Chicago exchange has also set in place trading limits to avoid problems with the settlement, by limiting trading in cases of great volatility:
“Special price fluctuation limits equal to 7% above and below prior settlement price and 13% above and below prior settlement price and a price limit of 20% above or below the previous settlement price. Trading will not be permitted outside the 20% above and below prior settlement price.”