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Trading Bitcoin Futures

Now that the CBOE has authorized Futures trading for Bitcoin, I’ve been watching it carefully. I even tried a small trade last week, taking just $50 gain in 5 minutes. I didn’t want to let the trade run any longer because I wasn’t comfortable with trading Bitcoin at the time.

Nevertheless, I’ve been watching it and noticed that there seems to be a bottom level around $10,000. Even on January 26th when the January contract expired, causing a lot of selling pressure, it only dropped to $10,000 and quickly rebounded within a few hours. The same thing happened three days earlier on January 23rd. That tells me something. This looks like a strong support level.

Bitcoin chart

Now, this doesn’t mean that we should be safe to buy at $10,000 because anything can go wrong. For example, if the IRS imposes rules for paying taxes on every little trade, that can cause a tremendous sell-off due to panic.

Anyway, getting back to my topic, Trading Bitcoin Futures, I feel more comfortable now testing another trade.
This time, I’ll wait for it to drop to $10,000 again. I placed an order to buy one Bitcoin Futures contract at $10,000 GTC. So the order will execute when and if it ever gets down to that level again.

What Happens Next?

I’ll post another article when and if this trade goes through and what I ended up doing with it. I don’t plan to hold, it long once I get it, because Bitcoin fluctuates considerably.
Now, I know this pattern isn’t necessarily going to repeat. I can be totally wrong with how this will turn out, but it’s going to be interesting to experiment with it.

My Exit Strategy

By the way, I also have an exit strategy on the down side. After many yeard of trading on the stock market, I’ve learned an important lesson: To admit when I’m wrong and get out before a small lose turns into a big one. Therefore, if it falls below $9,500 then I’ll sell and take a $500 loss.

Bitcoin Currency vs. Bitcoin Futures Trading

Bitcoin Futures trade almost 24 hours a day from 6PM on Sunday through 4:15PM on Friday. (Times are EST). There is also short closed period for maintenance between 4:15PM and 6PM every evening.

The actual currency trades 24 hours a day, even on weekends. But I don’t find this important, especially considering other advantages of Futures.

Tax Advantage of Futures Trading

Gains on Futures contracts have a favorable tax treatment. Under IRS Section 1256, 60% of Futures gains are taxed as long-term gain (no higher than 20%) and the other 40% is taxed as ordinary income.

Record keeping is also a breeze. Section 1256 only requires reporting the total gain or loss on your 1040 form, and your broker sends you a 1099-B with that total figure you need to report. There is no need to list every trade, as you would have to do when you trade regular crypto-currencies.

Disclaimer: I am sharing my own trading plans and experience, in addition to some educational info. This in no way should be taken as advice. You need to discuss your trading plans with a professional adviser.

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