A lot of people are now starting to trade Bitcoin futures at sites like
OKCoin,
BitMEX, and
CryptoFacilities . One of the first questions people have when they start trading futures is: why are the prices higher than the spot? How does this work exactly? Here's a little explanation to help you understand the simple maths behind it.
Some Finance 101 (or maybe 102) shows how you can calculate what the "fair value" of these contracts would be, given no arbitrage being possible. You can replicate the future value of a bitcoin in USD by borrowing USD and buying BTC, so the fair price is derived from the excess of USD borrowing rate vs BTC lending rate. The price of the Forward then should not deviate far from this level or arbitageurs close it.
This material is inspired partially from Arthur at BitMEX's arbitrage trading YouTube presentation here.
The efficient pricing of Futures contracts theoretically in finance is then governed by this formula:
F = S * ( 1 + Rh * t ) / (1 + Rf * t)
Where F = the price. S = spot price (Rh/Rf) Rh = home interest rate Rf = foreign interest rate t = days / 365
Just as an example, using Bitfinex swap markets as the baseline, at a spot rate right now of $410 , USD rate of 9% APY and BTC rate of 2% APY, and a quarterly maturity of 90 days. Home = USD, Foreign = BTC
Its not exact, but we will use as a simple rate for quarter on USD at 2.25% and 0.5% on BTC.
Here is a simple Bitcoin Futures Fair Price Calculator which you can plug these values into and you will get:
http://www.bitcoinfuturesguide.com/fair-price-calculator.html
Using this metric, the expected premium then on the OKCoin quarterly expiring in 90 days will be about $8, and if spot is still around $410 its price will be around $418.
This is what we expect the OKCoin premium to be in then based on this model.
You can read more detailed explanation here:
http://www.bitcoinfuturesguide.com/bitcoin-blog/why-do-bitcoin-futures-prices-tend-to-have-a-premium-to-the-index-or-spot-value
