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EducationalApril 14, 2021

Bitcoin Calendar Spreads Explained

Shubham Goyal
April 14, 2021

What Are Bitcoin Futures Contracts?

Bitcoin futures contracts are derivatives contracts that enable traders to buy or sell Bitcoin at a predetermined price, and also have a preset maturity date. With a Bitcoin futures contract, traders bet on the value of bitcoin at a specific point of time in the future. By predicting whether the price of bitcoin would hike up or go down at a particular time and date in the future, traders can either try out a long position so they can buy bitcoin at a fixed price upon the expiry of the bitcoin futures contract in the future, or they can go for a short position and sell bitcoin at a fixed price instead upon the contract’s expiry.

Read more about crypto futures contracts here.

What Are BTC Calendar Spreads?

Bitcoin calendar spreads are essentially a kind of bitcoin futures contract. A calendar spread allows a trader to both leave an expiring futures contract and enter a deferred contract within a single trade. So with a BTC calendar spread, a trader’s bitcoin futures position can be extended by one or more months, based upon which deferred contract they get into.

Calendar spread contracts are signified by the price gap of two separate futures contracts that have the same underlying asset, but different maturities. So a bitcoin calendar spread is defined with the price difference between a longer-dated bitcoin futures contract and a shorter-dated bitcoin futures contract. Thus, a position in a bitcoin calendar spread contract symbolizes a long and short position in the two underlying bitcoin futures contracts.

A long position in a BTC calendar spread would be defined by the price difference between a long longer-dated bitcoin futures contract and a short shorter-dated bitcoin futures contract, and a short position in a bitcoin calendar spread can be signified by the price gap between a short longer-dated bitcoin futures contract and a long shorter-dated bitcoin futures contract.

Bitcoin Calendar Spread Convention:

Bitcoin calendar spreads expire on the last Friday of a month, and are listed on the nearest two months in the quarterly cycle, as well as the nearest two months not in the quarterly cycle.

Different futures contract spreads carry varied quoting conventions, like stock index futures and treasury futures have totally opposite conventions for buying or selling calendar spreads during the roll process. Bitcoin futures observe the same convention as the stock index futures; buying a BTC calendar spread means buying the deferred contract and selling the nearby.

Why Should You Choose BTC Calendar Spreads over Bitcoin Spot Trading?

Compared to bitcoin spot trading, bitcoin calendar spreads come with many, many advantages, such as:

  1. Cost-effective: As we know, bitcoin calendar spreads are designed so traders can simultaneously trade in two bitcoin futures contracts. Therefore, with a BTC calendar spread, traders are not required to balance two different positions; instead they can make do with a single position, which does away with the need for independent margining and thus requires less margin. Plus, the fee for trading a bitcoin calendar spread is obviously lower than trading two separate contracts.
    This particular aspect of BTC capital spreads brings capital efficiency, as well as makes it more cost-effective compared to the spot trading of bitcoin.
  2. Lowered Risks: Bitcoin calendar spreads naturally come with lower associated risks, since they involve having both a long and a short position on the same underlying asset.
  3. Market Neutrality: Since bitcoin calendar spreads contracts represent offsetting positions in two futures contracts with the same underlying asset, the price of a bitcoin calendar spread can not be affected by bitcoin’s own price volatility, which is unavoidable in bitcoin spot trading. The lower volatility also allows traders to get higher leverage on bitcoin calendar spreads, so traders can take on bigger positions with smaller margin.
  4. No Need to Hold Bitcoin Itself: While with bitcoin spot trading, a trader needs to trade the coin itself, a BTC calendar spread does not require investors to hold any actual BTC, so they also enable people who cannot trade BTC due to location-specific issues to participate in and benefit off trades.

Bitcoin Calendar Spreads on Delta Exchange:

Delta Exchange has very recently launched bitcoin calendar spreads with up to 200x leverage. Delta calendar spreads will be margined and settled in USDT; traders would have to either deposit USDT to their Delta accounts, or convert their BTC to USDT on Delta Exchange to trade in the BTC calendar spreads. The prices of the Delta calendar spreads are quoted in USD.

The order book on Delta calendar spreads represents the price at which traders wish to buy or sell the difference between two bitcoin futures contracts on different maturities. The margin requirement for Delta calendar spreads are not decided by the prices of the spreads themselves.

Instead, the margin is decided upon by the notional size of the contract. The notional size of the BTC calendar spreads on Delta is 0.1BTC/contract, and so the margin required for opening a Delta calendar spread position is a fraction of the price of 0.1BTC in the USD.

Further, for the BTC calendar spreads on Delta, both the maker and taker fees are set at 0.05%. Trading fees are also charged based upon the notional value of the Delta calendar spreads.

For further knowledge on the mechanics of the Delta calendar spreads, do visit our spread contracts guide here. As for the BTC calendar spreads themselves, you can check the contract here.

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