How Coinfloor's Bitcoin Futures Differ from CME, CBOE

The first physically-delivered bitcoin futures will be launched in April by London-based trading platform CoinfloorEX. Up until now, bitcoin futures at prominent exchanges, such as Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME), have tracked the price of bitcoin at cryptocurrency exchanges for their futures contracts, which are settled in cash. “When you talk to the liquidity providers, they all say the same thing, which is they want a physically delivered futures contract so they can hedge their exposure across exchanges,” Mark Lamb, founder at Coinfloor, told Reuters.

What "physically-delivered" means

A physically-delivered bitcoin futures contract entails settlement of the contract using actual bitcoin. In practical terms, this means that the parties will have to digitally transfer bitcoin between themselves. The task is not an easy one because physical delivery of future contract positions is subject to several legal provisions, which may run counter to bitcoin’s blockchain. For example, futures contracts are subject to Know Your Client (KYC) and Anti-Money Laundering (AML) requirements. They are also subject to stringent security for the stored asset. Coinfloor has not divulged details about how it plans to adhere to these provisions. It is likely, however, that its operations as a cryptocurrency exchange might prove to be helpful.

There are additional differences between the futures contracts at CoinfloorEX and those at CME and CBOE. According to the specification document posted on Coinfloor’s website, one contract unit of CoinfloorEX is equal to 0.0001 bitcoin. CME and Cboe each have contract units of five and one bitcoin each, respectively. Coinfloor’s futures contracts have initial margin requirements of 20% and maintenance margin requirements of 15%. But the exchange has also stated that it reserves the right to “adjust” the margin requirement at any time depending on market conditions. CME has initial margin requirements of 43% along with variation margins. In some cases, banking institutions responsible for clearing trades were reported to be demanding as much as 100% margin to clear bitcoin futures. (See also: What's The Difference Between Bitcoin Futures On CME Vs. CBOE?). 

Coinfloor has also unveiled a hard fork policy for its futures contracts. In a document, the exchange has listed potential scenarios related to hard forks and how it plans to tackle them. On the other hand, the Chicago Mercantile Exchange (CME) is still mulling over how it plans to tackles forks. 

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns a fractional amount of bitcoin. 

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