US-listed brokerage Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) today enhanced its cryptocurrency offering by enabling the short trading of Cboe Futures Exchange (CFE) Bitcoin futures. Potential Bitcoin bears, however, need to be aware of the dangers involved with the extremely risky financial product.
In addition, the cost to short Bitcoin is not cheap. In order to protect the company, IB will accept Bitcoin’s short positions with a margin requirement of $40,000 per contract, five times the value required for long positions of CFE Bitcoin futures. Since the contracts debuted on Sunday at Cboe Global Markets, Interactive Brokers has required Bitcoin bulls to deposit a margin of $9,000.
While the company now enables its clients to easily access the price movement of the world’s most popular cryptocurrency, it said that the new offering doesn’t limit the potential losses associated with directing investment funds to bet against Bitcoin futures contracts.
Interactive Brokers founder, Chairman and CEO Thomas Peterffy pointed out that betting against the cryptocurrency is very risky given Bitcoin’s volatility. However, he noted: “The introduction of short sales was necessitated by the large premium of the January futures contract over the price at which Bitcoin trades on the physical venues.”
Before IB’s action, the option to short Bitcoin has been mostly available in the past few months through CFD products that are offered by many forex brokers. This is not to mention that this hasn’t exactly been a good choice so far, given the coin’s 17-fold surge in price. But for those daring enough to try again, they now have a more regulated venue to bet against the rise.
Short selling, in general, means selling an asset or derivative that you don’t own when you expect its price to fall in the future. When it does, you buy back the asset at the lower price and make a profit. It is the opposite of buying the instrument (going long), where you profit when the price goes up and lose when it goes down.
(Photo: Interactive Brokers)