About ICBIT derivatives market
Futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today (the futures price or the strike price) with delivery occurring at a specified future date, the delivery date.
All contracts are quoted in Bitcoins and some of the contracts are quoted in another currency (e.g. US Dollars in case of BTCUSD family of contracts). ICBIT provides a margin system with upper and lower limits within a trading session that are similar to any major futures exchange.
Trading runs all day. Clearings happen at 20:00 GMT and 08:00 GMT, clearing duration is flexible. Please note, the ICBIT exchange reserves the right to perform additional clearings to enhance trading range in rare occasions (mostly, when there is a strong, more than 10% move on the spot market).
Typical use cases
There are numerous reasons why stock exchanges and derivatives market exist. ICBIT provides traders a unique opportunity to utilize advanced financial instruments for a specific purpose. The list below shows some common usage scenarios.
- Miners, merchants who accept payment in Bitcoins, or just anyone having Bitcoins who wants independence of BTC vs USD rate. This is the most typical use case for futures. Example: Miner has mined 1000 BTC and current exchange rate is $6 for 1 BTC (so marking to market that's $6000 value in Bitcoins). If rate decreases to $3 for 1 BTC by December, miner would effectively loose half of his money (because he needs to do certain payments in USD). To fix this problem the miner sells 600 december BTCUSD futures contract at 6.0000 price. Now, if rate goes down he would get as many Bitcoins as it's needed to buy $6000 on the spot market. If rate goes up, his account will still have exactly amount of Bitcoins needed to buy $6000 (which would be less in Bitcoins, but his Bitcoins increased value - so the miner loses nothing).
- Traders who want to speculate on the Bitcoin to fiat money rate. Buying/selling futures contracts is significantly cheaper than trading on the spot market. Also trader is allowed to take any position he likes - long or short, without the need to own the corresponding currency (e.g. USD to go long in BTC, and BTC to sell for going short in BTC). Accessible leverage varies according to the specific instrument, however a rough estimate for BTCUSD contract would be close to 1:10.
- People who want to invest their Bitcoins into commodities or metals market. Traditionally, one would need to exchange his Bitcoins to US Dollars, open a broker account, transfer USD to that broker's account, buy gold or oil futures there, wait, sell it and get profit. ICBIT removes all unnecessary steps and allows you to buy commodities and oil futures directly and get profits directly in Bitcoins.
- Traders who want to arbitrage and make the market. Trading futures contracts provides perfect possibility to arbitrage between spot market and futures market. Everyone is able to provide liquidity on the market on equal conditions.
- Algorithmic traders. ICBIT's list of futures is going to include futures on commodities, metals and other frequently traded assets. This allows traders to build complex strategies and test them in real time without the need to connect to a specific broker. All necessary instruments for hedging the risk are available.
- High-frequency traders. Though HFT's impact on the market is being constantly debated, ICBIT won't prohibit high-frequency trading as long as it does not interfere usual human/bot trading.
What contracts are traded?
You can see links to contracts specifications in the left menu. First contracts to trade will be currency (USDBTC) and commodities (GOLD and BRENT futures). As market grows, more contracts will be added.