Goldman Sets 100% Margin Requirement On "Some" Bitcoin Futures trades

Goldman Sachs has become the latest brokerage to raise its margin requirements for clients who wish to trade the new bitcoin futures launched by the CBOE late Sunday, following in the footsteps of Interactive Brokers, which initially prohibited clients from taking a short position in the futures contracts and later demanded more than a double margin in case a short leads to a greater than 100% loss.

Not surprisingly, the Vampire Squid is taking a similarly cautious approach, announcing that it will ask some of its clients to put up 100% margin on their bitcoin futures positions if they wish to clear them with the bank, suggesting the bank would be covered in case of a full loss on the underlying. 

Of course, by "some", the bank probably means clients who are seeking to short the digital currency - a sign that the bank is afraid it could be left on the hook for customers' losses if there's a vicious "Bitcoin Volkswagen" which wipes out short positions. By demanding full margin, Goldman's clients may as well be trading the underlying as there is zero leverage on the associated futures position; effectively, the only benefit from doing such a trade is giving Goldman the "privilege" of holding the bitcoin and keeping it safe from hackers' prying hands.

The demands deterred some clients from seeking to clear trades through the bank and led them to take their business elsewhere, Bloomberg said. Notably, the guidelines are higher than Options Clearing Corp.’s 44%, required to clear contracts traded on the Cboe Global Markets Inc., and the 47% to be demanded by CME Group Inc. when it begins trading bitcoin futures next week.

“Margin decisions are based on multiple factors and vary on a case-by-case basis,” Tiffany Galvin, a spokeswoman for New York-based Goldman Sachs, said in a statement.

The bank is one of a small list of bank that have agreed to clear the trades since the Cboe began offering futures contracts earlier this week. Bitcoin’s volatility spurred many large banks to hold off although with every passing day they are losing market share to Goldman, which will prompt all of them to rush back in once a few weeks go by without major accidents.

It’s not uncommon for a brokerage to impose steeper requirements than the exchange. Goldman’s guideline means that clients won’t enjoy any leverage on long positions. A margin requirement is how much investors must set aside so that other parties in the trade know any losses can be covered. The guidelines for bitcoin futures are several times that of commodities such as gold and oil.

The price of bitcoin futures dipped modestly on the news, as Goldman now effectively allows shorting bitcoin, even if without leverage.

Comments

DetectiveStern nope-1004 Thu, 12/14/2017 - 16:27 Permalink

I've taken the money I'd normally spend on football and horse races and put it XRP. It's money (not a lot) that you expect to lose when sports betting so I thought why not. Got in at .47 it's .81 now. If it drops fuck it, I usually pick horses that would be better off ploughing fields anyway.Although XRP does have real world uses such as a medium for international transfers. Lower transaction costs than BTC and much quicker.

In reply to by nope-1004

dot_bust Thu, 12/14/2017 - 15:07 Permalink

The real utility of bitcoin is the underlying technology -- blockchain technology, a distributed digital ledger system.The banks must hate this system because it's decentralized. However, there are unconfirmed rumors that the NSA is behind bitcoin. Whether these rumors are true or not, the basic premise of the blockchain is solid.It stands to reason that the NSA would try to exploit it by creating its own cryptocurrency and popularizing it. The only way to thwart such subversive activity is to avoid becoming overly reliant on one cryptocurrency like bitcoin.Of course, futures contracts might be a way for the banks to rehypothecate bitcoin and neutralize its value. Who knows whether that scheme will work.As I see it, the basic problem that must be overcome is to avoid overspeculation in cryptocurrencies and keep them as a medium of exchange.The current parabolic rise in the value of bitcoin can only end badly, as history proves that parabolic moves up in value for an asset are inevitably followed by parabolic descents.So, it would be best to use cryptocurrencies as mediums of exchange that exclude the parasitic banks.

CaperAsh Thu, 12/14/2017 - 15:12 Permalink

Let's face it, establishing margin levels for an instrument that often goes up and down by 100% in a matter of weeks - if not days - is going to take some time, especially if the futures contract 'takes,' in which case it will probably reduce that volatility somewhat. But the author is rong with "By demanding full margin, Goldman's clients may as well be trading the underlying as there is zero leverage on the associated futures position; effectively, the only benefit from doing such a trade is giving Goldman the "privilege" of holding the bitcoin and keeping it safe from hackers' prying hands." Another main benefit is how easy it will be to convert BTC to USD and back, currently one of the biggest hassles with Bcoin. And therefore another huge minus is that all proceeds will be recorded and monitored by the USG, which eliminates one of BTC's main properties. However, I believe this contract might well help BTC become a more well-ordered speculative instrument, and in so doing also help it in other non-regulated exchanges become a better hedge and long-term investment vehicle. And this will effect other blockchain moneys.  Time will tell...

CaperAsh Thu, 12/14/2017 - 15:12 Permalink

Let's face it, establishing margin levels for an instrument that often goes up and down by 100% in a matter of weeks - if not days - is going to take some time, especially if the futures contract 'takes,' in which case it will probably reduce that volatility somewhat. But the author is rong with "By demanding full margin, Goldman's clients may as well be trading the underlying as there is zero leverage on the associated futures position; effectively, the only benefit from doing such a trade is giving Goldman the "privilege" of holding the bitcoin and keeping it safe from hackers' prying hands." Another main benefit is how easy it will be to convert BTC to USD and back, currently one of the biggest hassles with Bcoin. And therefore another huge minus is that all proceeds will be recorded and monitored by the USG, which eliminates one of BTC's main properties. However, I believe this contract might well help BTC become a more well-ordered speculative instrument, and in so doing also help it in other non-regulated exchanges become a better hedge and long-term investment vehicle. And this will effect other blockchain moneys.  Time will tell...

Ajax_USB_Port_… Thu, 12/14/2017 - 15:31 Permalink

The only place were everyone is a winner is in the liberal school system. In real life, everyone can't be a winner. There are going to be some big crypto loosers. Stay nimble my friends! Gold is my sleeping pill.

Ink Pusher Thu, 12/14/2017 - 17:09 Permalink

Gutless fucks!Where's the fucking sport in that?Count on the fact that the next WoRm released is going to be eating blockchains alive 24/7/365.It's going to make the Billions in damages done by MyDoom and W32Stuxnet look like an elementary school picnic.Everyone is spending and working like madmen in a pathetic attempt to guard against the theft of their precious fantasy currency...These silly fools don't realize nobody wants to steal it except criminals and  everyone dealing in the real world just wants it to disappear forever and never be mentioned again... Like FLOOZ did.    

Ink Pusher SixIsNinE Fri, 12/15/2017 - 15:03 Permalink

The world's "first crypto" system attempt back in 1999. FLOOZ bit the dust because of massive credit fraud and organized crime involvement.It was labeled a "tech startup failure" back then, being the exact same shit with a host of different branding labels today.https://en.wikipedia.org/wiki/Flooz.comThe same fate for both BEENZ and DIGICASHhttps://www.coindesk.com/3-pre-bitcoin-virtual-currencies-bit-dust/If you can't find a sucker , just re-brand and keep doing it until you do.There will never ever be a shortage of suckers. They multiply as fast as cockroaches and share equivalent IQ curves.

In reply to by SixIsNinE

Yellow_Snow Thu, 12/14/2017 - 18:55 Permalink

Just a week ago 'oldbugs' were posting with ferociously how CME futures were going to crush BTC out of existence...Once again, BTC proves nay-sayer's wrong...