Coinbase, the largest cryptocurrency exchange in the U.S., has launched a new service that allows its retail customers to trade futures contracts based on Bitcoin and Ethereum. The service, which went live on Monday, is the first of its kind in the country and aims to attract more investors to the crypto market.
Futures contracts represent a strategic financial arrangement where parties agree to trade a specific asset at a set price on a future date. These contracts serve multiple purposes: they provide a method to manage potential price changes, offer opportunities for speculation on market trends, and allow for engagement with an asset’s value without the necessity of direct ownership.
How to Trade Futures on Coinbase
Coinbase’s futures contracts are denominated in U.S. dollars and settled in cash, meaning that traders do not need to hold or deliver any cryptocurrency. The futures trading service is available to eligible customers who have verified their identity, completed a futures suitability quiz, and deposited at least $10,000 in their account.
The exchange has also introduced smaller contract sizes to make futures trading more accessible and affordable for retail investors. For example, one Bitcoin futures contract on Coinbase is equivalent to 0.01 Bitcoin, while one Ethereum futures contract is equivalent to 0.1 Ethereum.
However, Coinbase also warns its customers about the risks involved in futures trading, especially when using leverage. Leverage is a feature that allows traders to borrow money from the exchange to increase their buying power and potential returns. Nevertheless, leverage also magnifies the potential losses and can result in liquidation if the market moves against the trader’s position.
Coinbase’s launch of futures trading for retail customers comes amid regulatory challenges from the Securities and Exchange Commission (SEC), which oversees securities transactions in the U.S. The SEC has accused Coinbase of violating securities laws by offering certain products without proper registration.
Coinbase has denied these allegations and argued that the SEC’s authority does not extend to cryptocurrencies. Coinbase is not the only crypto exchange that offers futures trading in the U.S.
Bakkt, which is backed by Intercontinental Exchange, the owner of the New York Stock Exchange, also provides futures and options contracts for bitcoin. However, Bakkt’s service is mainly targeted at institutional investors and requires physical delivery of Bitcoin upon settlement.