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Trading  | December 14, 2017

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.

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