Before beginning trading in bitcoin futures contracts, CME – the world’s largest currency trader – is likely to impose limits on bitcoin price fluctuations to avoid extreme volatility.
According to the Wall Street Journal, the CME Group will impose commercial stops at different levels of price movements and a “limit” to completely restrict price swings by any given level on any given day.
The first two limits, as detailed in the report, will go into 7% and again 13% above or below the settlement price from the previous day to implement a “two-minute pause in trading” of bitcoin futures. A stronger limit will prevent trading after price swings of more than 20%, up or down, on any given day.
Bitcoin’s price assessment this year show that so far, only two days have had variations above 20%. The price of Bitcoin increased by at least 13% in 11 days, while the price changed by at least 7% in 69 days.
CME operates with similar limits across multiple traditional markets, including gold, oil and equity futures.
A little over a week ago, the Chicago-based CME made the notable announcement of its intention to launch bitcoin futures before the end of the year, pending regulatory approval, a measure speculators believe will open the floodgates leading to institutional investors and liquidity entering the encryption space.
CME’s plans to set limits coincide with the chairman of the Leo Melamed group, the founder of financial futures, stating this week that the currency trader will “tame” bitcoin in a rules-based financial instrument.