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How to Read Bitcoin Futures Codes

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When you trade futures you start with F, G, H, J, K, M, N, Q, U, V, X, Z.
Each of the letters represents the month of the year that the futures contract expires.

Remember, with a futures contract, two counterparties settle on a fixed price and date to trade an asset.

The month of that date is represented by those letters.

The products exchanged on the exchange also have product codes.

Heating oil is RB, crude oil is CL and the bitcoin futures expected to trade on the CME starting December 18 will be BTC.

On the CBOE, which introduced its bitcoin futures contract Sunday, the bitcoin product code is XBT.

If you want to trade the January 2018 bitcoin contract, then, you will be exchanging BTCF8. BTC again represents bitcoin futures, "F" is the January code, "8" represents the year, 2018. If you want to trade the February 2018 BTC contract you trade BTCG8.

Pop quiz
But what if you want to trade the November 2017 BTC contract, what would it be named?

If you said BTCX7, you would be correct, but it's a tricky question. We are in December 2017.

The November contract, if it had existed, would have long elapsed by now.

That brings up a very significant point: If you have an open position in a physical delivery contract, you are subject to delivery.

In the case of CME and the CBOE Bitcoin futures, the contract is cash settled.

What this means is on the last day of the contract, the buyer is given the difference between the value of the futures contract and the settlement price if the settlement price is higher than the value of the futures contract.

If the value of the futures contract is higher than the settlement price, the seller is paid the difference in dollars.

But what happens if you want to keep your futures position after the futures contract expires?

If you are long the contract you can simply sell it and purchase the contract for the next month.

This sounds easier than done.

You have to remember the market is constantly moving on all contracts.

If you don't mind paying to do so then it really is a simple process.

If you do, then you probably want the two-step process to happen concurrently.

Selling or buying a futures contract and then simultaneously doing the opposite another contract that expires later, is called spreading.

Since the only variable between the two futures contracts is the expiration date, it is specifically called calendar spreading.

If, after spreading, you end up with opposite positions in two contracts, then you own a calendar spread.

Futures traders do a lot of spreading. Some do it for the reason described above, rolling an existing position into another month.

Others do it to trade the price difference between two months.

Some traders can execute this successfully at very little cost, others successfully at very high cost.

The definition of success for the latter group is an indulgence in generosity.

The first group is usually composed of high-frequency traders with high-powered computers.

One and Done
The futures exchanges, in the never-ending quest to assist, and of course make cash, have simplified the procedure.

You can buy or sell calendar spreads as a single contract.

The exchange takes on the task of executing the process as one operation, so the trader is ensured to get the two positions at the same time.

These are called exchange-traded calendar spreads.

If you did the two-step process yourself, you end up with the same thing, but you executed a synthetic calendar spread.

Exchange calendar spreads sought to join the party, so they were given their own names.

The February/March calendar spread for bitcoin is at the CME is BTCG8-BTCH8. In other words, the February 2018 contract "minus" the March 2018 contract.

The exchange calendar spreads are usually long the first month and short the second month.

If your goal was to sell the February contract and purchase the March contract, then you simply sell the BTCG8-BTCH8 exchange calendar spread.

If you are new to futures trading that is probably a lot to take on. There is still more to learn before
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