Bitcoin Binary Options
In June, NADEX, a Commodities Futures Trading Commission regulated binary options exchange, announced the addition of a bitcoin product. NADEX first introduced a Bitcoin product in 2014. Here is part of their press release.
“Nadex (North American Derivatives Exchange) has added a Mini-Bitcoin Spread with a one-month duration to complement its existing week-long contract. As the first exchange regulated by the Commodity Futures Trading Commission to offer a Bitcoin contract (in 2014), Nadex is expanding the choice of contract duration and size in response to member requests, as part of its ongoing efforts to lead in the cryptocurrency space.
“The new Mini-Bitcoin Spread contract is a month-long contract with a tick value of $0.01 per point of the underlying Bitcoin index.”
NADEX explains binary options this way on its website. “A binary option asks a simple yes/no question: Will this market be above this price at this time? You buy the option if you think yes and sell if you think the answer is no. “When the trade expires, if you’re right, you get the full $100 value. If you are wrong, you’ll get zero. However, you can never lose more than you paid.”
Even as NADEX was expanding its product offering, binary options globally were being curtailed significantly: banned entirely in Israel and advertising regulated significantly in Europe.
Binary options are similar to over/under bets on sporting events. They’ve come under fire as little more than casino gambling, with critics noting that there is little hedging value, the primary purpose for derivatives.
Binary options trading is legal in the US, but only on CFTC regulated exchanges; NADEX and Cantor Exchange are the only two exchanges approved by the CFTC for binary options trading.
The CME and CBOE also have binary options, along with many other trading products.
Bitcoin SWAPs
Meanwhile, the Cantor Exchange announced that 2019 may feature a bitcoin swap. Here’s part of their announcement.
“CX has self-certified a bitcoin swaps contract with the Commodity Futures Trading Commission (“CFTC”) and intends soon to announce a start date for trading to begin.
“CX® Bitcoin Swaps will be unleveraged and will offer the ability to trade over a range of bitcoin prices, and will trade for dates that are approximately one-month, two-months and three-months ahead. The contracts will be cash settled at 12 noon New York time on the last Friday of each calendar month based on a cash settlement price determined by CX.”
Cantor wasn’t the only one announcing bitcoin swap trading soon.
Morgan Stanley also plans on introducing bitcoin swap trading. Here’s part of a Bloomberg story.
“Morgan Stanley plans to offer trading in complex derivatives tied to the largest cryptocurrency, according to a person familiar with the matter, joining other Wall Street firms in creating ways for clients to play the digital currency market.
“The U.S. bank will deal in contracts that give investors synthetic exposure to the performance of Bitcoin, said the person, who asked not to be identified because the information is private. Investors will be able to go long or short using the so-called price return swaps, and Morgan Stanley will charge a spread for each transaction, the person said.”
A CNBC story provided further detail on how the product will work.
“Traders will have the choice to go either long or short using so-called price return swaps; Morgan Stanley will charge a spread for each transaction, the source told Bloomberg.
“Trading will begin once an internal approval process is complete and there is proven client demand, the report said.”
