How to Trade the CME GAP for Bitcoin Futures
✔Although CME’s bitcoin futures trading products do not deal in actual bitcoin, they indirectly affect the open market price.
Although cash-settled futures are primarily used by institutional investors, retail investors can trade the “CME gap”.
✔If the price of BTC on exchanges is higher than the CME closing price from the previous Friday, BTC’s price usually decreases in order to meet the CME price. If the price is lower than the previous Friday's CME close, then the price of BTC is expected to rise.
✔However, historically, funds that just held bitcoin for the long-term, outperformed funds that engaged in discretionary longing and shorting strategies. So, investors that just want to hold bitcoin instead of trading the CME Gap should not feel like they are missing out.
✔Trading the CME gap has historically worked better in bear and sideways market trends instead of bull markets.
Four Basic Strategies for Trading the CME Gap
Without investing directly in CME futures contracts, there are ways to play the CME gap or contract expirations under the correct market conditions. The first two deal directly with the underlying asset. The last two have increased complexity but are extensions of using the same market insights.
❗The first of which comprises buying the underlying asset directly and longing the position. This would mean timing the asset at a lower dollar price and selling the amount after the price rises. In relation to our CME price, buying the dip just before a contract expiration and selling it once the price increases. One of the benefits of this strategy is that it simply relies on the investor seeing this dip and buying it while it is happening rather than speculating if it comes. The CME expirations are no surprise, so any investor who is paying attention, the 48 hours prior to their expiration, may move into a position and sell the position if the price rebounds. The worst-case: the investor is left holding the underlying asset longer than they may wish if the price does not rebound.
❗The second consists of “shorting,” which assumes taking the position prior to the price dipping. Holding the underlying asset, someone sells an amount of BTC at a higher price and waits for the CME dip to occur. Then the investor buys back in with the amount of money they sold their original position for and ends up with more BTC than they did previously. The worst-case: the investor has to buy back into the investment with less BTC than they had previously if the price moves north.
❗Third, a trader can use different exchange platforms to trade their position using leveraged or margin trading. For longing, the trader is putting up collateral to borrow money used to purchase a larger position in bitcoin at the current price, which they then will sell for a profit if the price increases. If the price drops, they can be liquidated (left with a balance of zero in their position) of their collateral.
❗Fourth, using the exchange platform to trade on margin, but this time to short. This requires borrowing bitcoin at the current price, selling them, and returning the loaned bitcoin later, with the expectation the price is going to drop. Using margin to short can be beneficial, as you do not have to sell your own BTC, and the trader can still capitalise on a decline in the price of bitcoin.
CONCLUSION
During a bear market or periods of sideways movement for Bitcoin, trading the CME gap may help traders increase their positions over time. However, investors have to make sure to take into account other macroeconomic factors, including the central bank’s interest rate policy, or this potential pattern can cause an expensive trap. Investors that try to short bitcoin in anticipation of the spot price converging or meeting a lower closing price of bitcoin futures on the CME might get caught out if bitcoin continues to rally instead of filling the gap.
REFRENCE : NUMERS SITE
✔Although CME’s bitcoin futures trading products do not deal in actual bitcoin, they indirectly affect the open market price.
Although cash-settled futures are primarily used by institutional investors, retail investors can trade the “CME gap”.
✔If the price of BTC on exchanges is higher than the CME closing price from the previous Friday, BTC’s price usually decreases in order to meet the CME price. If the price is lower than the previous Friday's CME close, then the price of BTC is expected to rise.
✔However, historically, funds that just held bitcoin for the long-term, outperformed funds that engaged in discretionary longing and shorting strategies. So, investors that just want to hold bitcoin instead of trading the CME Gap should not feel like they are missing out.
✔Trading the CME gap has historically worked better in bear and sideways market trends instead of bull markets.
Four Basic Strategies for Trading the CME Gap
Without investing directly in CME futures contracts, there are ways to play the CME gap or contract expirations under the correct market conditions. The first two deal directly with the underlying asset. The last two have increased complexity but are extensions of using the same market insights.
❗The first of which comprises buying the underlying asset directly and longing the position. This would mean timing the asset at a lower dollar price and selling the amount after the price rises. In relation to our CME price, buying the dip just before a contract expiration and selling it once the price increases. One of the benefits of this strategy is that it simply relies on the investor seeing this dip and buying it while it is happening rather than speculating if it comes. The CME expirations are no surprise, so any investor who is paying attention, the 48 hours prior to their expiration, may move into a position and sell the position if the price rebounds. The worst-case: the investor is left holding the underlying asset longer than they may wish if the price does not rebound.
❗The second consists of “shorting,” which assumes taking the position prior to the price dipping. Holding the underlying asset, someone sells an amount of BTC at a higher price and waits for the CME dip to occur. Then the investor buys back in with the amount of money they sold their original position for and ends up with more BTC than they did previously. The worst-case: the investor has to buy back into the investment with less BTC than they had previously if the price moves north.
❗Third, a trader can use different exchange platforms to trade their position using leveraged or margin trading. For longing, the trader is putting up collateral to borrow money used to purchase a larger position in bitcoin at the current price, which they then will sell for a profit if the price increases. If the price drops, they can be liquidated (left with a balance of zero in their position) of their collateral.
❗Fourth, using the exchange platform to trade on margin, but this time to short. This requires borrowing bitcoin at the current price, selling them, and returning the loaned bitcoin later, with the expectation the price is going to drop. Using margin to short can be beneficial, as you do not have to sell your own BTC, and the trader can still capitalise on a decline in the price of bitcoin.
CONCLUSION
During a bear market or periods of sideways movement for Bitcoin, trading the CME gap may help traders increase their positions over time. However, investors have to make sure to take into account other macroeconomic factors, including the central bank’s interest rate policy, or this potential pattern can cause an expensive trap. Investors that try to short bitcoin in anticipation of the spot price converging or meeting a lower closing price of bitcoin futures on the CME might get caught out if bitcoin continues to rally instead of filling the gap.
REFRENCE : NUMERS SITE