How to trade Ether/Bitcoin Ratio futures
Ether/Bitcoin Ratio futures are a way for market participants to gain exposure to Ether and Bitcoin markets in a single trade. These two cryptocurrencies are highly correlated, but trading opportunities can arise when market nuances may impact the strength of the correlation. Ether/Bitcoin Ratio futures provide an efficient way to trade the relationship, without the risk of price slippage.
The quoting convention for Ether/Bitcoin Ratio futures is the number of bitcoin needed to buy one ether. Market participants should keep this in mind when identifying the position they would like to take.
- A market participant who buys the ratio is anticipating that the ratio may increase, implying that the price of ether will outperform the price of bitcoin.
- A market participant who sells the ratio is anticipating that the ratio may decrease, implying that the price of bitcoin will outperform the price of ether.
Calculating the ratio and notional value
There are two key inputs used to determine the notional value of an Ether/Bitcoin Ratio futures contract: the ratio and the contract multiplier.
The ratio can be found by dividing the price of Ether futures by the price of Bitcoin futures (using the same expiration month) rounded to the nearest tradeable tick, which goes out six decimal places. The contract multiplier is one million U.S. dollars, and the minimum tick size is five dollars per contract.
(Price of Ether futures ÷ Price of Bitcoin futures) x $1,000,000 = Notional value
For example, if the price of June 2024 Ether futures is $1,890 and the price of June 2024 Bitcoin futures is $30,255, the notional value would be as follows:
1,890 ETHN4 ÷ 30,255 BTN4 = 0.062470 BTC/ETH
0.062470 x $1,000,000 = $62,470
Keep in mind that the margin required is likely to be significantly lower than the notional value of the contract. Additional details about margin requirements for Ether/Bitcoin Ratio futures can be found at cmegroup.com/EBR.
Example
A market participant believes the price of ether will rise more than the price of bitcoin, so she decides to buy one Ether/Bitcoin Ratio futures July 2024 contract at the current price of 0.061805.
Later in the day, the price of ether rose five percent to $1,984.50 while the price of bitcoin stayed the same. As a result, the ratio increased to 0.064895.
| Buy EBRN4 | Sell EBRN4 |
|---|---|
| $1,890 ETH ÷ $30,580 BTC = 0.061805 BTC/ETH | $1,984.50 ETH ÷ $30,580 BTC = 0.064895 BTC/ETH |
The market participant’s gain or loss on the trade can be found by multiplying the number of contracts by the change in ratio and the contract multiplier. In this scenario, the market participant would have gained 0.00309 on the contract and made $3,090 on the trade.
1 contract x (0.064895 - 0.061805) x $1,000,000 = $3,090 profit
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