TD Ameritrade Jumps Out of Gate With Bitcoin

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TD Ameritrade began offering Cboe’s Bitcoin futures (XBT) to its retail investor clients this Monday, a week after the contract’s launch. Rival discount retail brokers Fidelity and Charles Schwab have made no such moves, with Schwab saying it is “weighing their associated risks.”

For its part, TD Ameritrade is taking a wait-and-see approach to offering the CME Group Bitcoin futures contract (BTC) — which were introduced this week — before it allows clients access to those contracts, says JB Mackenzie, director of futures and forex trading at TD Ameritrade.

Mackenzie said that with any new contract, the firm wants to watch “how the market comes together,” such as levels of volume and open interest, where buyers and sellers come from and what the bid/ask spreads are, before offering it to clients for trading.

The firm, he adds, is pleased to see how Cboe handled the first week’s trading, especially dealing with multiple trading halts due to the price surge on the first day.

“It’s not just about liquidity in the U.S. but also on overnight hours, so in Asia and Europe as well as U.S., [we’ve watched] how all that worked,” he said. “Plus, we wanted to see how the settlement process worked on a daily basis.”

Cboe maintained an orderly market despite trading halts and met customer expectations, the director says.

Cboe, CME Specs

The Cboe contract is sized at one Bitcoin, priced now around $18,450, whereas the CME Group contract size is five Bitcoins.

Another difference is that Cboe’s contract is based on the Gemini Exchange’s cash underlying its holdings, whereas the CME Group contract is based on an average weighted index of multiple Bitcoin cash exchanges.

Mackenzie noted that the Cboe contract might be more geared to the retail customers due to its size.

To trade the contract, TD Ameritrade requires all customers to open a futures account with a $25,000 minimum deposit.

In addition, margin/collateral is higher, and varies, over what exchanges request, which is typical for a futures account, he added. Both the Cboe and CME Group contracts are cash-settled in dollars, not Bitcoin.

Crypto Mania

As for Bitcoin and its surge of popularity, Mackenzie says he’s most interested in seeing cryptocurrencies’ overall capability and what they can provide, especially with the underlying blockchain technology.

Does he see Bitcoin replacing gold, as some have speculated?

“People hear that these products are ‘mined’ but they really are considered index products … they are early in their life cycles, so I’m not sure they will replace any product,” he said.

— Related on ThinkAdvisor:

Advisors will have to decide how to handle the increasing client requests to buy into the cryptocurrency.

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