Why the founder of Interactive Brokers is afraid of bitcoin futures
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Bitcoin futures contracts that Cboe Global Markets (an American company that owns the CBOE exchange, as well as the operator of the exchange operator BATS Global Markets) and the CME Group (the largest North American market of financial derivatives) hope to be included in the listing at the end of this year, can complete what It was beyond the financial crisis: to destroy many trading companies and create a threat to the stability of Wall Street clearing units.
Never before has any financial product on the exchange been the cause of such disasters, but Thomas Peterffy, one of the most successful traders in the derivatives market, is concerned that bitcoin derivatives will bring such extraordinary volatility to the markets that it will be difficult to contain. “First of all, I'm seriously scared,” said Peterffy, founder and chairman of the board of directors of the Interactive Brokers Group (ticker: IBKR).
JPMorgan Chase (JPM) head Jamie Damon and BlackRock (BLK) head Lawrence Fink are worried that Bitcoin is the bubble and money laundering best friend. Peterffy worries a little differently: he fears that low margin rates will stimulate speculation, threatening trading and clearing companies.
Futures margin rates range from 2% to 8%. When investor losses go beyond this, the broker must immediately cover them, and then receive funds from the client. This year, Bitcoin was trading from about $ 708 to almost $ 7,400. It can go higher, or collapse by 70% inside the day. It is also very difficult to analyze its price, since Bitcoin does not have economic functionality, unlike goods such as grain or S&P 500 index futures.
Peterffy is worried that small trading firms will offer the lowest margin rates to attract business, thereby becoming the weakest link in protecting the market from risks similar to those created by various products that monitor the CBOE Volatility Index (VIX). Many investors are confident that VIX will remain low. Such a rate can lead to disaster if volatility suddenly jumps and stocks collapse.
“The weakest clearing members are at the least risk. In any case, they have a little money and they will not lose more than they have. For this reason, the weakest clearing members will have the main share of Bitcoin contracts, which will fall in the event of a big jump. ” - says Peterffy.
Peterffy wants CME and Options Clearing Corporation (an American clearing house based in Chicago) to limit liability between clearing members to $ 100 million for Bitcoin futures. He also wants to isolate Bitcoin from other financial products, a step, he said, that has already been taken for some volatile products. Interactive Brokers will offer Bitcoin futures trading if these conditions are met, and will consider stopping business with some firms otherwise.
CME, Cboe (CBOE), and OCC do not comment on this, only stating that the risks of Bitcoin futures are manageable.
Bitcoin futures demonstrate the different sides of the challenges that American exchanges face. Markets used to be the place where companies managed risk or raised capital. Now, stock-oriented exchanges are actually very fast computer systems built to attract high-frequency traders and quanta. Commodity exchanges such as CME are trade volume dependent.
Exchanges have never dealt with something as exciting to the public’s imagination as Bitcoin. So while banks, such as the Goldman Sachs Group (GS), report that customers are not interested in trading stocks, bonds, and derivatives, exchanges should chase Bitcoin. Trading fees can be huge if the Commodity Futures Trading Commission allows Cboe and CME to list Bitcoin futures.
The situation should alert the derivatives industry, which is fighting for widespread acceptance. “Investors want to invest millions, tens of millions, and hundreds of millions in Bitcoin,” says Vincent Ayu, portfolio manager at hedge fund Gondor Capital, “in addition, people are scared of options.”
As already mentioned, Wall Street is developing new financial instruments by throwing ideas at the wall, and selling everything that sticks. Bitcoin futures, if Peterffy is right, can smash the wall.
Bitcoin futures contracts that Cboe Global Markets (an American company that owns the CBOE exchange, as well as the operator of the exchange operator BATS Global Markets) and the CME Group (the largest North American market of financial derivatives) hope to be included in the listing at the end of this year, can complete what It was beyond the financial crisis: to destroy many trading companies and create a threat to the stability of Wall Street clearing units.
Never before has any financial product on the exchange been the cause of such disasters, but Thomas Peterffy, one of the most successful traders in the derivatives market, is concerned that bitcoin derivatives will bring such extraordinary volatility to the markets that it will be difficult to contain. “First of all, I'm seriously scared,” said Peterffy, founder and chairman of the board of directors of the Interactive Brokers Group (ticker: IBKR).
JPMorgan Chase (JPM) head Jamie Damon and BlackRock (BLK) head Lawrence Fink are worried that Bitcoin is the bubble and money laundering best friend. Peterffy worries a little differently: he fears that low margin rates will stimulate speculation, threatening trading and clearing companies.
Futures margin rates range from 2% to 8%. When investor losses go beyond this, the broker must immediately cover them, and then receive funds from the client. This year, Bitcoin was trading from about $ 708 to almost $ 7,400. It can go higher, or collapse by 70% inside the day. It is also very difficult to analyze its price, since Bitcoin does not have economic functionality, unlike goods such as grain or S&P 500 index futures.
Peterffy is worried that small trading firms will offer the lowest margin rates to attract business, thereby becoming the weakest link in protecting the market from risks similar to those created by various products that monitor the CBOE Volatility Index (VIX). Many investors are confident that VIX will remain low. Such a rate can lead to disaster if volatility suddenly jumps and stocks collapse.
“The weakest clearing members are at the least risk. In any case, they have a little money and they will not lose more than they have. For this reason, the weakest clearing members will have the main share of Bitcoin contracts, which will fall in the event of a big jump. ” - says Peterffy.
Peterffy wants CME and Options Clearing Corporation (an American clearing house based in Chicago) to limit liability between clearing members to $ 100 million for Bitcoin futures. He also wants to isolate Bitcoin from other financial products, a step, he said, that has already been taken for some volatile products. Interactive Brokers will offer Bitcoin futures trading if these conditions are met, and will consider stopping business with some firms otherwise.
CME, Cboe (CBOE), and OCC do not comment on this, only stating that the risks of Bitcoin futures are manageable.
Bitcoin futures demonstrate the different sides of the challenges that American exchanges face. Markets used to be the place where companies managed risk or raised capital. Now, stock-oriented exchanges are actually very fast computer systems built to attract high-frequency traders and quanta. Commodity exchanges such as CME are trade volume dependent.
Exchanges have never dealt with something as exciting to the public’s imagination as Bitcoin. So while banks, such as the Goldman Sachs Group (GS), report that customers are not interested in trading stocks, bonds, and derivatives, exchanges should chase Bitcoin. Trading fees can be huge if the Commodity Futures Trading Commission allows Cboe and CME to list Bitcoin futures.
The situation should alert the derivatives industry, which is fighting for widespread acceptance. “Investors want to invest millions, tens of millions, and hundreds of millions in Bitcoin,” says Vincent Ayu, portfolio manager at hedge fund Gondor Capital, “in addition, people are scared of options.”
As already mentioned, Wall Street is developing new financial instruments by throwing ideas at the wall, and selling everything that sticks. Bitcoin futures, if Peterffy is right, can smash the wall.