Unofficial Crypto-Currency Derivative Trading Guide

www.BitMEX.com

Prepared by: Alex Harvey

Disclaimer:

While there are many exchanges and websites that off crypto-derivative trading contracts, I found that BitMEX provided the best contracts, exposure, and interface. The author is in no way affiliated with BitMEX, or any BitMEX partners. Furthermore, the following is intended for informational purposes only. This is not a place for the giving or receiving of financial advice, advice concerning investment decisions and or trading tips. Crypto-currencies are a risky investment as is, leveraged crypto-contracts expose the trader to even more market risk, invest at your own risk!

Overview:

BitMEX (Bitcoin Mercantile Exchange) is a Peer-to-peer crypto trading platform that allows users to trade derivative contracts on the price movement of various cryptocurrencies. It is important to note that BitMEX contracts do not involve buying or selling of the underlying currencies, as all trades are through Bitcoin, the trader is simply betting on the underlying price moving up or down. BitMEX offers leveraged contracts that are bought and sold in Bitcoin.

While all trades are denominated in Bitcoin, when you deposit your Bitcoin into your BitMEX account you will see a balance listed in XBT, this is the underlying BitMEX currency and its dollar value moves accordingly to real-market Bitcoin prices. For example, if you deposit 1 BTC into your account, your balance will be 1 XBT.

5 navigation Tabs on BitMEX:

1. Trade: This is the dashboard for trading on BitMEX. Here you can choose the instrument with which you wish to trade, select leverage, place and cancel orders, as well as view important information regarding your contract details and position information.
2. Account: This section displays all of your current account information such as: current Bitcoin Available Margin Balances, Deposit and Withdrawal information, Trade history and Affiliate information.
3. Contracts: This is an informational tab related to the instruments such as the Funding History, minimum contract sizes, leverage offered, expiry, Funding, underlying reference Price Index data, Settlement History and a few other pages relevant for a trader.
4. References: This is the education corner of BitMEX. Here you can learn about Futures, Perpetual Contracts, how positions are Marked, when and how Liquidation occurs, BitMEX Fees, Support and other informative material to help you understand the Exchange.
5. API: Here you will be able to find out information pertaining to developing and maintaining an API connection with BitMEX. We offer a fully featured REST API and a powerful streaming WebSocket API.

Bitmex Contracts:

• Traditional Futures Contract — BitMEX employs traditional futures contract that can be bought and sold and expire weekly, bi-annually, and annually.
• Perpetual Contracts — The most widely used contracts on the BitMEX platform are perpetual futures contracts. While they are structured similarly to traditional futures contracts, these have no expiry. The position can be held for as long as the trader would like. Contracts on BitMEX follow price indices to get the most updated and accurate pricing. For example, the XBT (Bitcoin) contracts follow the underlying Bitcoin index .BXBT. This index draws from both GDAX and Bitstamp (50% from each respectively.)

XBT Series (Bitcoin contracts)

XBT USD — Perpetual Contract

• each contract worth 1 USD of Bitcoin (For example: I currently have 146 long contracts of XBTUSD valued at $146.
• Available Leverage: 100x

XBTZ18 — Traditional Futures contract, expires at end of 2018.

• Primarily designed for speculators.
• Each contract is worth 1 USD of Bitcoin
• Available Leverage: 100x

XBTU18 — Traditional Futures Contract, expires September 2018

• Primarily designed for speculators
• Each contract is worth 1 USD of Bitcoin
• Available Leverage: 100x

XBT7DU105 — Upside profit contract settled every 7 days

• Allows buyers of contract to participate in potential upside of underlying instrument. Buyer pays premium on trade date, for which he is entitled to receive difference between underlying settlement price and strike price on maturity (if the difference is positive)
• All transactions settled in BTC
• Long only — A long UP position only benefits from a rally above the strike price.
• Contracts priced between 0 and 0.1 XBT.
• Available Leverage: 100x

XBT7D_D95 — Downside profit contract, settled every 7 days

• Same parameters as upside profit contract, only it allows investors to capture the downside.
• Available Leverage: 100x

XBJ Series (Japanese Yen)

XBJ — Futures contract, expires annually

• Allows traders to speculate on future price of BTC/Yen.
• Underlying and futures contract quoted in JPY
• Margin and PNL denominated in BTC
• Expires annually, (last friday of settlement month — non-perpetual)

XBTJPY — Perpetual contract.

• Each contract is worth 100 JPY of BTC.

Cardano Series

ADAU18 — Futures Contract, expires Sept 2018

• Allows users to speculate on the future price of ADA/XBT
• Contract value equal to its price in BTC.
• Pricing example: 1 ADA = $0.10 = 0.000015XBT
• Available Leverage: 20x

Bitcoin Cash Series

BCHU18 — Futures contract, expires Sept. 2018

• Allows users to speculate on the future price of BCH/XBT
• Margins, futures, PNL all denominated in BTC.
• Each contract is priced in BTC.
• Pricing example: 1 BCH = $548 = 0.087 XBT
• Available Leverage: 20x

EOS Series

EOSU18 — Futures contract, expires Sept 2018

• Allows users to speculate on the future price of EOS/XBT
• Each contract has value equal to its price in BTC.
• Pricing example: 1 EOS = $4.83 = 0.000747 XBT
• Available Leverage: 20x

Ethereum Series

ETH USD — Perpetual contract

• Each contract is worth .001 mXBT (1 Satoshi) per $1… Priced in USD
• Pricing example: 1 ETH = 296.15 USD
• XBT Contract Value: ETHUSD Price * Bitcoin Multiplier (100 Sat/$1)
• Available Leverage: 50x

ETHXBT — Perpetual Contract

• Each contract has value equal to its price in BTC.
• Base currency is ETH, quote currency is BTC.
• Available Leverage: 50x

ETHU18 — Futures contract, expires Sept 2018

• Each contract has value equal to its price in BTC.
• Available Leverage: 50x

Litecoin Series

LTCU18 — Futures contract, expires Sept 2018

• Allows users to speculate on LTC/BTC exchange rates.
• Each contract has value equal to its price in BTC.
• Available Leverage: 33.33x

Tron Series

TRXU18 — Futures contract, expires Sept. 2018

• Allows traders to speculate on Future value of Tron/BTC exchange rate.
• Each contract has value equal to its price in BTC.
• Pricing Example: 1 Tron = $0.01 = 0.0000306 XBT
• Available Leverage: 20x

XRP Series

XRPU18 — Futures contract, expires Sept 2018

• Allows traders to speculate on future value of XRP/XBT exchange rate.
• Each contract has value = to its price in BTC.
• Pricing example: 1 XRP = $0.32 = 0.00005103 XBT
• Available Leverage: 20x

Perpetual Contracts: Key components

Position marking — Perpetual contracts are marked according to fair price marking. Mark price determines unrealized PNL. According to fair price marking, the mark price will lag slightly behind the exchange price, this way, if there is a flash drop, your position won’t get liquidated unless the drop remains long enough to impact the mark price.

BitMEX Trading Dashboard (testnet)

Placing an order:

To place an order, direct your attention the left side of the Bitmex screen, where you will see the words ‘Place Order’. There are 3 types of orders that can be placed on Bitmex…

1. Limit order — Allows the trader to buy or sell at a preset price. The order will only be executed at the limit price or higher. When you list your limit price and place your order, your order will enter the orderbook and remain there until the market price reaches your limit price, then the order will be initiated. Allows traders to place Long/short trades at a specific price point.
2. Market Order — Allows the trader to buy or sell the market at market price.
3. Stop market — Similar to a stop-loss, a stop market is a non-public order to liquidate your holdings at a trigger price.

Order Parameters:

Quantity — Number of orders, each order is worth exactly $1 in BTT. If I have 96 orders at an XBT value of 0.0147 this has a notional value of $96.

Cost: XBT — This is how many XBT (Bitcoin) that the order will cost you. This amount goes into your margin and can be liquidated if your trade was poor and the market moves against you.

Order Value = Notional value of the order = Cost + Leverage.

Available balance = Your balance that is available to invest.

Types of order posting on Bitmex

Post only — This type of order only posts commands to the order book and doesn’t buy from existing commands. This is mainly used by robotic/algorithmic traders so that they only have to pay the maker’s fee and don’t have to pay the taker’s fee.

Maker is the one who creates the command

Taker buys from existing commands, makers fee is usually cheaper

Time in Force — 3 options for order timing:

1. Immediate or Cancel — All unfilled orders get cancelled
2. Good till Cancel — All unfilled orders get canceled
3. Fill or Kill — Fill the entire order, or if this is not possible at current market, then kill the order.

Cross margin

— A cross margin selection tells the site to use all available balance as collateral for trading.

Leverage

— Bitmex allows leverage of up to 100x on some contracts. Changing the leverage of your position ultimately affects how much you have to post as collateral in your initial margin. The higher leverage you order, the less XBT you have to post as collateral, but increasing the leverage will also affect your liquidation price. If you are LONG and increase leverage, then your liquidation price will increase, meaning if the market moves against you, a highly leveraged position would be liquidated sooner than a less leveraged one. Furthermore, increasing leverage raises your upside potential.

Liquidation price

• In the event that the market moves against you, your liquidation price is the price at which your maintenance margin would be liquidated to Bitmex, and your position closed.
• This price is based on GDAX (50%) and Bitstamp (50%).

Unrealized PNL

— Based on lagging mark price, hover over to see Unrealized PNL based on current market prices.

Risk Limits

• Risk Limits are also imposed that require higher margin levels for larger position sizes. This gives the BitMEX liquidation system more usable margin to effectively close large positions that would otherwise be difficult to safely close. If it is safe to do, larger positions are incrementally liquidated.
• If a liquidation is triggered, BitMEX will cancel any open orders on the current contract in an attempt to free up margin and maintain the position. Orders on other contracts will still remain open.

Funding Rates

• Bitmex employs a funding rate which acts as the exchange rate between users. When there are more longs than shorts, the fee is displayed in red, and longs will pay shorts. And Vice Versa. Fees are updated and paid every 8 hours, and don’t usually cost more than 0.0002XBT.
• Users only receive/pay funding if they hold a position an open position at time of funding.

Key Margin terms:

Wallet balance = Deposits — Withdrawals + realized PNL

Unrealized PNL = Current profit + Profit/Loss from open positions

Margin Balance = Wallet Balance + Unrealized PNL

Position margin — The portion of your margin that is assigned to the initial margin requirements on your open positions.

= (Entry value / Leverage) + Unrealized PNL

Order margin — Portion of your margin assigned to the initial margin requirements on your open orders.

Available Balance = Margin balance — order margin — position margin.

Depositing Funds:

To deposit funds on Bitmex, first set up an account on their website www.Bitmex.com

Then Click on the Account Tab, and click deposit. This will display your Bitmex public key, which you can enter into your Bitcoin wallet to send Bitcoin to your bitmex address.

Bitmex only accepts Bitcoin, do not attempt to send ETH, LTC or any other crypto to your Bitmex address, it will be lost.

Viewing your positions:

Toward the bottom of the Bitmex trading page, you will be able to view your open positions. This section contains relevant information regarding your trades’ performance, liquidation price, mark price (used to calculate Unrealized-PNL), symbol, value, entry price, margin, etc.

There are also tabs which allow you to view closed positions, active orders, stops, fills, and your order history.

Orderbook:

• The order book maintains a constantly updated ledger on recent buy/sell trades of the given contract you have selected. Notice the price column, which denotes the price of the buy or sell order. The size column denotes the order size (in terms of contracts) and the Total column denotes the dollar amount of the trade.
• The section in the orderbook with red numbers indicates sell-orders, while the section in the orderbook with green numbers indicates buy orders.
• You may notice that the panels in this section are constantly flashing between red and green. The red and green flashing indicates a number going up or down. If you see green flashing in the ‘buy’ section under Price and Size, chances are that there is bullish sentiment at the moment and the price will rise.

Charts on Bitmex:

Contract price chart

• One of the charts you will see on your Bitmex trading page, is the contract pricing chart. Depending on which contract you have currently selected, you will see a corresponding price performance chart for that index. This chart can be customized to your liking. For example users can choose between the following chart types: Bars, Candles, Hollow Candles, Heikin Ashi, Line, and Area charts. Users can also select the time-frame, indicators, and other indexes to compare. Furthermore, users have the option to view the chart on a percentage scale, a logarithmic scale, or auto-scale the chart using Bitmex’s built in functions.

Depth chart

• A depth chart gives a visualization of demand or supply of a particular stock or commodity or a cryptocurrency. The green and red lines of the depth chart indicate Bid (buy) and Ask (sell) levels. More on that can be found here: https://hackernoon.com/depth-chart-and-its-significance-in-trading-bdbfbbd23d33

Auto Deleveraging:

• When a trader’s position is liquidated, the position is taken over by the BitMEX liquidation engine. If the liquidation cannot be filled by the time the mark price reaches the bankruptcy price, the ADL system automatically deleverages opposing traders’ positions by profit and leverage priority.
• The price at which a traders’ positions are closed out is the bankruptcy price of the initial liquidated order.
• At all times, your position in the queue is shown by an indicator. This indicator represents your priority in the queue in 20% increments:

In the above example, all “lights” are lit, which would mean your position is in the top percentile. In the case of a liquidation that is not able to be caught in the market, you may be deleveraged.

• Deleveraging priority is calculated by profit and leverage. More profitable and higher leveraged traders are deleveraged first.

Liquidation:

• Most BitMEX contracts are highly leveraged. To keep these positions open, traders are required to hold a percentage of the value of the position on the exchange, known as the Maintenance Margin percentage.
• If you cannot fulfill your maintenance requirement, you will be liquidated and your maintenance margin will be lost.

Other Bitmex Rules:

• Traders are not allowed to hold to opposite positions on the same contract, for example, if I wanted to be long and short on XBTUSD Bitmex would not allow this. Furthermore, if you currently have an open long position for x amount of contracts, and you open a short position for x amount of the same contracts, this will in effect, close your order at market.
• In the same vein, Bitmex prohibits traders from holding two positions on the same contract, in the same direction.

This concludes the basic overview of the BitMEX trading site, while none of the above content is intended to be investment advice or trading tips, the author hopes that it will provide beginner level traders with a comprehensive overview of the site’s functionality and features.