How CME Futures Work
The Chicago Mercantile Exchange (CME) launched futures at the end of 2017, providing a regulated derivatives trading market for . CME futures use cash settlement, settling the difference in US dollars based on the reference rate (CME CF Reference Rate) at maturity, without involving physical delivery. This means that investors can bet on the rise and fall of prices through futures without actually holding , reducing the risk of spot custody. CME futures contracts come in various specifications: the standard contract code is , with each contract representing the notional value of 5 ; to lower the threshold, CME introduced Micro Futures in 2021, with each contract representing only 0.1 . Both are quoted in US dollars and use monthly expiration (nearby continuous months and quarterly months), with cash settlement based on the above reference price at maturity. CME futures trade almost around the clock through its electronic trading platform Globex (from Sunday evening to Friday afternoon, with a daily settlement break). It is worth mentioning that the CME futures market has a price limit mechanism, where trading is temporarily halted when the daily price fluctuation reaches ±7%, 13%, and 20% of the benchmark price, in order to curb excessive volatility. This mechanism is particularly important for assets like with huge fluctuations, as it can prevent chain risks caused by violent fluctuations. As an established exchange, CME futures trading is subject to strict regulation and risk control, including margin systems and clearing mechanisms, effectively reducing counterparty default risk. For large institutions and compliant funds, trading futures on CME is seen as a "mainstream" channel, as the trading is guaranteed by the exchange, with much higher security and transparency than many overseas crypto spot and perpetual contract platforms. In summary, CME futures have established standardized contract rules and a regulatory framework, providing a convenient gateway for institutional investors to participate in .How Futures Market Cash Flows Affect Prices
Although CME futures are cash-settled and do not directly involve physical delivery, their cash flows and position changes can have a significant impact on spot prices through arbitrage and sentiment transmission. First, the futures market provides a price discovery function - large buy or sell orders concentrated in the futures will drive futures prices to move, and rational arbitrageurs will buy or sell the spot to narrow the spot-futures spread, causing the spot price to follow the futures. Therefore, the bullish and bearish forces in the futures can indirectly sway the spot market. A typical example is when CME launched futures in December 2017, it for the first time allowed legal shorting of . At that time, many pessimists (shorts) bet on a price decline by shorting in the futures market, reversing the previous one-way uptrend driven solely by longs in the spot market. The analysis of the Federal Reserve Bank of San Francisco pointed out that the launch of futures allowed "pessimists" to invest real money to short, and the peak and subsequent decline of prices at the end of 2017 were highly correlated with the emergence of this mechanism. In short, the futures market added short-selling forces, offsetting the overly optimistic bubble sentiment, and the price of fell significantly more in the few months after its launch than in previous cycles. Moreover, changes in net long and short positions in CME futures are often seen as a weathervane for the flow of institutional capital. For example, when CME futures are in persistent backwardation (futures price higher than spot), it usually indicates that the market is bullish on the future, and capital is willing to pay a premium to lock in future prices. In this case, arbitrageurs will choose to "buy spot, sell futures" (the so-called cash-and-carry trade) to lock in risk-free returns. This operation will bring spot buying pressure and push up spot prices. Therefore, in a bull market, the annualized premium of quarterly contracts on CME and other mainstream exchanges often exceeded 20%, and institutional investors extensively engaged in cash-and-carry trades to obtain double-digit risk-free returns. They sold the high-premium futures while buying the spot, thus increasing the spot demand for . Conversely, in a bearish market, futures prices may trade below spot (in backwardation), and arbitrageurs will "sell spot, buy futures" to lock in profits, which will depress spot prices. Therefore, the cash flows in the futures market have a clear guiding and stabilizing effect on prices through the above arbitrage mechanism: when the futures premium is too high, arbitrage trading causes the spot to rise and the futures to fall, and vice versa, until the spot-futures spread returns to a reasonable level.The Formation Mechanism and Historical Fill-in of the CME Gap
Since CME futures only trade on weekdays, while the spot market trades 24/7, this time difference has given rise to the famous "CME gap" phenomenon. When prices experience significant changes on weekends, there is often a price vacuum between the Friday CME futures close and the following Monday open, forming a gap on the chart.As shown in the figure above, the yellow arrow indicates the gap in the intraday trading candlestick chart caused by the weekend market closure. When there is a significant difference between the CME closing price on Friday and the opening price on the following Monday, a data gap with no trading will be left on the candlestick chart, which is known as the CME gap.
The reason for the formation is straightforward: Bitcoin continues to trade globally on other platforms over the weekend, and if the spot price fluctuates significantly during the weekend, the CME opening price on the following week will directly jump to a new level, resulting in a price gap between the previous week's closing price.
For example, around March 3, 2025, the CME Bitcoin futures closed at around $85,000 the previous Friday, and the opening price on the next trading day surged to around $95,000, forming an upward gap of about $10,000. Such gaps are often clearly visible on the chart.
Since in traditional technical analysis, breaking through gaps is often seen as potential support or resistance areas, a large number of crypto traders also use the CME gap as an indicator to observe whether the price will "fill" the gap.
Historical experience shows that there is a high probability that Bitcoin CME gaps will be filled, meaning that the subsequent market will return to the gap price range for trading.
According to incomplete statistics, in a certain period, 28 out of 30 daily-level gaps were later touched by the price, with a fill rate of about 93%.
For example, the gaps formed during the uptrend since July 2024 have all been filled (the blue horizontal lines above), and the most recent relatively large upward gap was from $78,000 to $80,700 on November 8, 2024, which has been filled during the recent decline.
This phenomenon may be due to the following reasons: first, the gap position is technically attractive to both bulls and bears - bulls often see the lower edge of the gap as support to buy, while bears see the upper edge as resistance to sell, prompting the price to move towards the gap direction;
Secondly, many traders have formed the expectation of "gaps will eventually be filled" based on historical statistics, and then actively participate in gap-filling trades in their strategies, making this prediction self-fulfilling.
Although most gaps will eventually be filled, the time and manner of gap filling are uncertain. Some gaps may be quickly filled within a few days, some may be casually touched after a long time, and there are even a few historical gaps that have not been filled (usually occurring in extreme one-way markets, such as some upward gaps at the end of 2020 that have not been filled for years). Therefore, traders should not be overly superstitious about the logic of inevitable gap filling, and need to analyze specifically based on the current fundamentals and market trends.
Overall, the CME gap provides a unique perspective to observe the deviation between futures and spot prices. When the spot market experiences significant weekend fluctuations, leaving a gap, it also means that futures market participants will need to quickly adjust their positions on Monday to catch up with the spot price, often accompanied by increased trading volume and volatility. In this case, traders familiar with the gap may take the lead, further amplifying the magnitude of the move towards the gap. As investors, we need to pay attention to the high historical gap-filling rate, but also guard against the risks of individual gaps not being filled for a long time, and avoid betting on a single scenario.
