Delta Exchange is excited to announce the launch of Calendar Spread Contracts on Bitcoin Futures with up to 200x Leverage. You can check the contract here. Bitcoin spread contracts will margin and settle in USDT. Traders can deposit USDT to their accounts or convert BTC to USDT on Delta Exchange to trade these contracts. USDT quoting will allow traders to easily lock in the desired dollar spread, via limit orders, without worrying about the price of Bitcoin.
Calendar spread contracts listed on Delta Exchange allow traders to trade the price difference between Bitcoin futures on two different maturities. By taking a position in the spread contract a trader takes offsetting positions in futures on two different maturities. Hence, if you are long the Dec-Sep calendar spread, then you are long the December future and short the September future. Similarly if you are short the spread, then you are short the longer dated future and long the shorter dated future.
These contracts will allow traders to trade the mispricing between the shorter dated and longer dated futures. Thus, if a trader’s view is that the spread between two maturities is going to rise, then they should go long the spread, but if they are of the view that the spread is going to converge they should instead sell the spread. The order-book on calendar spread contracts on Delta represent the price at which traders are willing to buy or sell the difference between futures on two different maturities.
The advantage that the spread contracts provide is that you are not required to margin on both futures separately. The gains on one leg are used to offset the losses on another. This makes the trade more capital efficient, cheaper to margin and easier to manage, as one does not need to worry about liquidation on the loss-making leg. In short, the spread contracts have portfolio-margining inbuilt, which allows traders to trade large size with a small balance.
One should note that the calendar-spread contract listed on Delta represents the spread between futures listed on Delta. However, though the individual futures, listed on Delta, are inverse contracts and settled in Bitcoin, the calendar-spread contract is a vanilla contract and settled in USDT. The reason to keep the calendar-spread contract a vanilla contract is that the vanilla contracts allow for USD quoting of spread per BTC or for 1 bitcoin notional. This makes it easier for a trader to calculate and relate to their PnL, which is simply given as exit_spread – entry_spread. Note that this formula is independent of the entry price on individual legs and is only sensitive to the price of the spread at entry and exit. This flexibility is not available with inverse contracts, hence we have decided to keep our spread contracts vanilla.
Given that the individual legs on Delta are inverse and that the spread contract is vanilla, having a position in a spread contract does not mean that you will have a naked position in the longer dated future, when the shorter maturity future expires. The calendar spread contracts on Delta expire when the shorter maturity futures expire. Hence if you want to roll your position from shorter to a longer maturity, then taking a position in the spread contract (roll) will NOT do that automatically. You will be required to close/expire the shorter maturity future position and open a fresh position in the longer dated future. The primary use-case for trading the spread-contract currently is to speculate on the mispricing between futures on different maturities, this contract solves that problem and offers a margin efficient way to do so.
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Risk warning:Trading Futures can be a highly risky endeavor. Although trading can yield significant profits, in the cases of extreme price movement and volatility, Delta Exchange reserves the right to liquidate margin balances.
Delta Exchange Team.