Trading Column `The Writing on the Wall´ – What Will CME Bitcoin Futures Do to the Price?
CME Long versus Short Positions In every futures contract, there’s a long and a short position and an underlying asset (in this case bitcoin). The long position is taken by the trader who wishes to profit from an increase in the price of the underlying, and the short position is taken by the trader who wishes to profit from a decrease in the price of the underlying. The price of bitcoin is determined by the CME CF Bitcoin Reference Rate (BRR), a price index composed from Kraken, Itbit, GDAX, and Bitstamp. It is very unusual for two traders to show up at the exchange at the exact same time for a trade. Instead, the counterparty in the futures contract is almost always a market maker who hedges themselves by buying or shorting the underlying in order to earn the spread of the trade. Thus, we have two scenarios: Trader long, market maker short Trader short, market maker long Trader long, market maker short Long : Bitcoin has a virtually uncapped upside...