[POLL] What futures would you want to trade?

[Fireball]

Hello!
As the development and testing of the futures market at ICBIT nears the moment when it could go live, I would like to listen to opinions of what futures contracts would you really want to trade first, to get interest and to prepare liquidity providers/market makers for those contracts.

It's a very important moment for the Bitcoin economy, so please take your chance and vote for what would actually be useful for you.
Every user has 6 votes (equal to the number of options), so that you can put your votes to the specific contracts you want to trade (or even put all of them to one contract, if you are not interested in trading anything else).

The results of this poll would be used when launching the derivatives market. Before that, all papers related to contracts specification, margin system, and trading will be published and discussed here.

Thanks,
Alex.

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[Fireball]

I forgot to add futures on Facebook shares to the voting options, oh well.. :-)

jk

[niko]

I wouldn't.

[Stephen Gornick]

I would like to listen to opinions of what futures contracts would you really want to trade first, to get interest and to prepare liquidity providers/market makers for those contracts.

Can you explain how this futures trading would operate?

So these are futures and not options, right?  
But we are not actually going to pay the final delivery amount, and are only speculating on what the future contract will be priced at the point the contract settles for delivery?  What leverage will there be?  (e.g., at 10:1 leverage for instance, my 1 BTC at a BTC/USD of $5.18 would buy me a future contract valued somewhere in the $51.80 range?  Would I be forced out if the price of the commodity drops in value below certain threshold?

As far as which commodities, the BTC/USD and BTC/EUR already have an efficient mechanism, thanks to arbitrage.  About the only thing you'ld be unique in offering is leverage for BTC/EUR speculation.

But the WTI and/or Brent futures are two where there is no easy way currently for the small investor to acquire a small position.  Consider the typical commuter who pays several hundred dollars a month in gas.  The per-transaction trading fees are too high to make it worth it for the commuter to hedge against future price increases by buying shares in an ETF or other instrument in equities markets.  But if a low cost transaction using bitcoins is possible, then there are a lot of people that might start buying futures who previously (like myself) normally wouldn't.

As far as Gold, or index futures, those all could become large for this type of trading as well.  For instance, those in countries without a decent equities market locally might find the ability to easily buy S&P futures useful.  They generally aren't the ones with bitcoins though.  So probably the next most useful future to offer would be the European indexes futures, making it more easy to acquire a position in that market by those in the U.S. perhaps.

[David M]

The futures contract MUST have "physical" delivery at expiry.  No "ifs", no "buts".  MUST.

[Fireball]

Can you explain how this futures trading would operate?
So these are futures and not options, right? 

Yes, futures indeed, and they are very much like futures contracts (http://en.wikipedia.org/wiki/Futures_contract) traded on every major exchange which are settled in cash.

But we are not actually going to pay the final delivery amount, and are only speculating on what the future contract will be priced at the point the contract settles for delivery?  What leverage will there be?  (e.g., at 10:1 leverage for instance, my 1 BTC at a BTC/USD of $5.18 would buy me a future contract valued somewhere in the $51.80 range?  Would I be forced out if the price of the commodity drops in value below certain threshold?

The delivery happens by transferring the final variation margin between parties according to the exchange rate at the biggest spot market (Mt.Gox so far).
In very simple words: buying futures will get you enough Bitcoins to buy the specified amount of the underlying item at the delivery date.

Example: Let's use a sample contract specification here: https://icbit.se/node/3 for USDBTC contract.
It has a lot of 100 USD, so that if you buy this futures, you're guaranteed (with certain restrictions) to get as much Bitcoins as it would be needed to buy $100 at the delivery date.

This amount is called Variation Margin. Generally, it's marked to market all the time by using the formula below, and that's what allows traders to hedge and speculate right away, without waiting for futures settlement date.

VariationMargin = (LastPrice - PreviousClearingPrice) * LotSize;
LastPrice is the current price, and PreviousClearingPrice is the price of the previous clearance or price at which this position was opened.

In order to better understand, let's make a real world example, what today's trading might look like (for simplicity, assuming futures trades without contango or backwardation) along with all calculations.
24 hours ago, 1 BTC min price was $5.125 USD. Hence to buy $100 USD one needs 19.5122 BTC.
1 hour ago, 1 BTC max price was $5.25 USD. Hence to buy $100 USD one needs 19.0476 BTC.

If one would buy 10 contracts (totalling to amount of $1000) yesterday at price 19.04, and close the position now at 19.51, the variation margin would be:
(19.51 - 19.04) * 10 = 4.7 BTC


The underlying math may seem complex, however for a trader it opens bigger abilities than just playing casino at what Bitcoinica was (I really like gmaxwell's explanation: https://bitcointalk.org/index.php?topic=82581.msg911141#msg911141). However, if people want to speculate, it's as easy as it was in Bitcoinica, just more transparent and safer.

[Fireball]

As far as which commodities, the BTC/USD and BTC/EUR already have an efficient mechanism, thanks to arbitrage.  About the only thing you'ld be unique in offering is leverage for BTC/EUR speculation.

The only exchange which offered high leverage was Bitcoinica (its disadvantages are highlighted above). In case with futures, the actual price of buying and selling the contract is very small, while "the leverage" could be very high. It's important to be careful though, as with any kind of investment.
Are there any more who offer leveraged trading?

But the WTI and/or Brent futures are two where there is no easy way currently for the small investor to acquire a small position. But if a low cost transaction using bitcoins is possible, then there are a lot of people that might start buying futures who previously (like myself) normally wouldn't.

Absolutely! In fact, I expected Oil futures to go nr. 2 in this poll, but it looks like people want gold more than oil.

The lot size for the BRENT contract would need to be 10 barrels. With a daily trade range of + 5%, the initial margin to open 1 contract position would be around 22 BTC.
Would that be too high for Bitcoin traders?

If I make lot size 1 barrel, it would allow more fine grained trading and lower entry barrier, however there will be technical difficulties providing liquidity to the market (e.g. not being able to hedge positions at a real futures exchange as they usually operate with 10 barrels contracts).

[blueadept]

I think you're doing this right. Cash settled futures are definitely the way to go and will help drive Bitcoin adoption.

If you're acting as market maker, you should still be able to hedge even if you're using a 1bbl lot size foot BRENT. You just have to put up the risk for up to ten bbl, anything above that can be hedged. You can price that risk in using the spread. If you're not acting as market maker, traders and arbitrageurs should be able to do the hedging themselves. At a lower lot size you'll get higher initial volume; if the volume goes high enough to cause performance issues and it isn't economical to scale up or out, you can then increase minimum lot size.

A liquidity rebate would be great to attract market makers, BTW. Not sure if that's in your plans or not.

[Fireball]

I think you're doing this right. Cash settled futures are definitely the way to go and will help drive Bitcoin adoption.

Thanks!

If you're acting as market maker, you should still be able to hedge even if you're using a 1bbl lot size foot BRENT. You just have to put up the risk for up to ten bbl, anything above that can be hedged. You can price that risk in using the spread. If you're not acting as market maker, traders and arbitrageurs should be able to do the hedging themselves. At a lower lot size you'll get higher initial volume; if the volume goes high enough to cause performance issues and it isn't economical to scale up or out, you can then increase minimum lot size.

Yes, I think smaller size would be beneficial, even if I, as a market maker, would bear higher risk. It should worth it.

A liquidity rebate would be great to attract market makers, BTW. Not sure if that's in your plans or not.

Certainly. Whole point of the futures trading platform is that everyone could be making the market if he/she wants to. This would provide a much smoother experience than the central-dependent Bitcoinica-alike system.

[Fireball]

The BTCUSD futures leads the voting for now, so logically it's the first futures contract offered to trade at https://ICBIT.se.

Trading is live now for two days, we make the market to provide some initial liquidity, leverage is about 1:4, contract specification with example calculation - https://icbit.se/BUZ2.

Please vote to decide what contract is going to be added next.

[Boussac]

None. Futures are a very bad idea. They give people the impression that bitcoin is just a toy for speculators.
Market makers do not require futures to provide reasonable liquidity.

Futures on Brent ? You mean selling oil that I don't own ? Oil that has not been extracted yet perhaps ?
If people keep on speculating on oil prices, they will kill the oceans.
People will drill deeper and deeper to the point where they can't fix a deep water oil leakage in less than 6 months: that's already started. Oil is a common good (or evil) that should not be subject to speculation.

[Fireball]

None. Futures are a very bad idea. They give people the impression that bitcoin is just a toy for speculators.
Market makers do not require futures to provide reasonable liquidity.

http://en.wikipedia.org/wiki/Futures_contract
It's a tool. A tool which can be used for good and for evil. And when it comes to finances, it's one of the most core concepts. Toy stuff are bucket shops which are gambling on the price without a real market.

ICBIT provides a real market, useful for real needs. Speculations are just part of the big game, and futures can be used for many other things.

[Luceo]

I'd like to be able to trade futures in altcoin...

BTC/LTC and BTC/NMC would be interesting.

[Fireball]

I'd like to be able to trade futures in altcoin...

BTC/LTC and BTC/NMC would be interesting.

I didn't put that up into the voting list because... alternative coins are still not widely adopted, and as for my own opinion, no altcoin proposed anything significant which would make it better than Bitcoin.

[Boussac]

None. Futures are a very bad idea. They give people the impression that bitcoin is just a toy for speculators.
Market makers do not require futures to provide reasonable liquidity.

http://en.wikipedia.org/wiki/Futures_contract
It's a tool. A tool which can be used for good and for evil. And when it comes to finances, it's one of the most core concepts.

Futures are a fraud like a Ponzi scheme.
Futures allow people to sell something they do not own.
They go against the notion of basic property rights or the notion of common goods.
The only difference is a Ponzi is illegal while futures are a "legal "fraud.

Why are futures "legal", unlike a Ponzi ?
Reason number one is: unlike a ban on Ponzi where there is an organizer making promises, it is practically impossible to enforce a ban on futures in any given country.
Reason number two: futures benefit the big producer to the detriment of the small producer. For instance, unlike the small producer, the big wheat producer is equipped to store the wheat safely in large quantities. Big producers have the clout with lawmakers to keep futures legal.
Now , because it is "legal", one has every right to trade futures.

One last word, the claim that futures are good for liquidity is questionable. Sustainable liquidity is achieved through real trade of actual goods and services creating volume of transactions.
Futures create short term liquidity but the cure can kill the patient. Liquidity through futures is like an athlete on steroid.

[cbeast]

None. Futures are a very bad idea. They give people the impression that bitcoin is just a toy for speculators.
Market makers do not require futures to provide reasonable liquidity.

http://en.wikipedia.org/wiki/Futures_contract
It's a tool. A tool which can be used for good and for evil. And when it comes to finances, it's one of the most core concepts.

Futures are a fraud like a Ponzi scheme.
Futures allow people to sell something they do not own.
They go against the notion of basic property rights or the notion of common goods.
The only difference is a Ponzi is illegal while futures are a "legal "fraud.

Why are futures "legal", unlike a Ponzi ?
Reason number one is: unlike a ban on Ponzi where there is an organizer making promises, it is practically impossible to enforce a ban on futures in any given country.
Reason number two: futures benefit the big producer to the detriment of the small producer. For instance, unlike the small producer, the big wheat producer is equipped to store the wheat safely in large quantities. Big producers have the clout with lawmakers to keep futures legal.
Now , because it is "legal", one has every right to trade futures.

One last word, the claim that futures are good for liquidity is questionable. Sustainable liquidity is achieved through real trade of actual goods and services creating volume of transactions.
Futures create short term liquidity but the cure can kill the patient. Liquidity through futures is like an athlete on steroid.

Futures are gambling. Much of the global economy is based on gambling with insurance. While I don't advocate it, there's nothing you can do to stop people from looking for the easy way to make money and pissing away their savings on a gamble. There are always going to be predators to take advantage of them. At least with Bitcoin, there can be a margin of transparency if it is done right. It is less likely that a Ponzi can be formed if an investment vehicle discloses their business dealings. Bitcoin provides a way to make records public. Besides, I think liquidity for a Bitcoin exchange will be good for price stability.

[farfiman]

coffins