Bitcoin Mercantile Exchange (BitMEX) is one of the many online trading sites that provide individuals with prediction contracts, futures, and derivatives as well as markets in which they can engage in cryptocurrency trading. There are various types of contracts that are offered by BitMEX, with each of these contracts being paid for in bitcoin. We will take a closer look on this in our BitMEX trading guide. Out of all platforms that offer cryptocurrency trading, BitMEX is the only one that provides users with a “Perpetual P2P Swap, which is a contract that is traded like a future, with the only difference that it has not expiry date. The platform has seen exponential growth since its establishment, an aspect that could be partly attributed to their capacity to provide traders with access to derivative markets and their ability to command loyalty among its users through their user-friendly yet highly advanced platform, increased security, open communication, and transparency.
What Coins are Available on BitMEX?
There are three bitcoin markets that are offered by BitMEX, including Bitcoin/JPY (XBJ), Bitcoin/CHY (XBC), and Bitcoin/USD (XBT), and other various cryptocurrency markets that act as alternatives to the three, as well as prediction markets. The alternative markets for trading cryptocurrencies as provided by BitMEX include dash (DASH), Factor (FCT), Litecoin (LTC), Augur (REP), Ripple (XRP), Monero (XMR), Ethereum Classic (ETC), Ethereum (ETH), Zcash (ZEC) and various derivative prediction markets including Bitcoin ETF Approval (COIN). In addition, users are provided with demo accounts, through which they can test their trading strategies without the need to add and risk funds. This paper is a guide on how to use BitMEX to trade cryptocurrencies.
Getting Started on BitMEX
The first step towards using BitMEX involves creating an account with the platform by filling the registration form provided on their signup page. The company asks for basic information that would allow one to login into their account and to create a trader profile. KYC/AML is only needed when one needs to withdraw or deposit FIAT currency. Case in point, Bitfinex provides individuals with the ability to trade across the markets using their deposited BTC and to perfectly withdraw Bitcoin without the need to fill in any forms. One’s account only needs to be verified when they want to withdraw or deposit Euro or USD, among other currencies. In the case of BitMEX, individuals are not required to go through any submission of KYC/AML documents. All individuals need to do is to sign up and they can immediately start trading. After setting up an account, it should be funded with the amount that one wishes top trade with.
Securing Your BitMEX Account
After successfully setting up an account, it is important to take all necessary measures to ensure that the account is safe. Such security starts with keeping one’s login credentials confidential. Hackers increasingly attempt to gain access of user accounts and defraud them. Nevertheless, there are various measures that could be upheld to prevent such hackers from breaching one’s account:
⦁ To start with, BitMEX provides users with an option for two-factor authentication, which they can enable on the exchange account to prevent hackers from accessing one’s account, even in the event that they get access to one’s login credentials. The email account used to log into the BitMEX account should also be secured using the two-factor authentication (2FA). 2FA allows users to add an extra layer on the process of authentication by requiring them to either use email authentication or SMS authentication upon an attempt to log in. the use of 2FA exponentially reduces the risk of one’s account being compromised, with an exception of cases involving sim-jacking. As such, considering the risk that sim-jacking provides for SMS authenticated accounts, it is highly advisable to use Google Authenticator when setting up 2FA as opposed to using SMS 2FA as the latter is more susceptible to sim-jacking.
⦁ Apart from using 2FA, it is important for users to ensure that they set strong passwords that would not be easily guessed or predicted by hackers. Such passwords should not be used on any other platform as a breach of such a platform could result in the same passwords being used to access one’s BitMEX account. In addition, users should not use their names, social security numbers, date of birth, or any other personally identifiable information as a password as this could not only be easily guessed, but also expose one’s personal information to unauthorized third parties in case of a breach. In this case, strong passwords are defined as those with a minimum of 20 characters that mix characters, numbers, and lower and upper case letters.
⦁ Last but not least, it is important for BitMEX users to consider creating and using a separate email to create an account with BitMEX as an additional measure of security.
A Walk Through the BitMEX Dashboard
You are presented with the landscape below when you log into your BitMEX account.
⦁ Market Overview
The available markets can be found at the top of the dashboard highlighted by their ticker symbols. Users can access the information of each market by clicking the links on the symbols on the left, including the percentage loss or gain within the past 24 hours and the current trading price.
⦁ Selection of a Market
This section provides a row of markets, all marked by their tickers. The relevant information about each market can be accessed by clicking on the markets.
⦁ Market Information
Users are provided by charts, recent trade history, and the order book in this section. In this section, the user’s selected market is what is shown.
⦁ Contract Details of the Market
This section provides information of the selected market or contract in the “Selection of a Market” section.
Trading Bitcoin on BitMEX with up to 100:1 Leverage
Like other cryptocurrencies, bitcoin is known for its volatility, which is informed by the substantial fluctuation in its prices over a short period. For traders who wish to turn a market that is falling into a profitable opportunity, leverage trading provides such an opportunity. BitMEX allows traders to leverage up to 100:1 in trade, providing them with the opportunity to extensively increase their gains or potential losses. This section will provide a step by step guide on how one can use leverage to trade cryptocurrencies on BitMEX.
Definition of Leverage Trading
Leverage trading is also known as margin trading. This is a form of trading in which a trader is able to borrow funds that will allow him or her to amplify any potential return from the sell or buy of cryptocurrency. Leveraging provides an individual with increased buying power, allowing them to access much larger accounts than they can with their actual account balance.
Case in point, a trader who has an account balance of 10 BTC and places a trade with a leverage of 5:1 could open a 50 BTC worth position. As such, if such a trader experiences a favorable shift in the market prices, then he or she will be exposed to 10 times the profits they would have made on their actual account balance. Nevertheless, in the case where the market shifts against the trader, he or she will be exposed to magnified losses.
A proper understanding of leveraging is critical to realizing the various benefits that this type of trading provides for cryptocurrency traders. One such benefit, as earlier highlighted, involves increased profitability. Traders are only expected to put up a fraction of their trade’s value to get access to the same profit as they would in a conventional trade. Trading profits are calculated using the traders position’s value, hence margins multiply the individual’s returns on trades that follow, in cases where such trades bring profit. For individuals who have a better understanding of margin trading, the use of higher margin, like 100:1, could see them get unimaginable profits on their trades. Another major advantage associated with margin trading is that leveraging gears opportunities. As such, individuals who use leverage trading can free some of their capital and use it in other investment who using margins to magnify their current position and possible profits. Gearing refers to the ability to make available more money for investment. Apart from profitability and gearing opportunities, leverage trading also allows for shorting the market. Leveraged products can be used by traders to speculate on movements within the market, an aspect that allows then to benefit both from markets that are rising and those that are falling. This is referred to as going short. Last but not least, leverage trading allows for 24-hour dealing. Even though the hours allocated for trading may differ between markets, cryptocurrency markets allow for around the clock trading for those who use margin trading.
Nevertheless, there are various disadvantages of leverage trading that ought to be well understood by traders before using such options on trading platforms such as BitMEX. One such demerit is the potential of magnified losses. The purpose of engaging in margin trading is to magnify potential profits in the case of successful trades. However, in the case of reduced market prices, margins also magnify the losses incurred. Another disadvantage of margin trading is that the trading platforms could impose funding charges on the lend capital, especially in cases where traders wish to keep their position open for longer periods, such as overnight. Last but not least, a trader may receive a marginal call requiring him or her to add funds in cases where the trade position moves against him or her. The trader may be required to add funds to keep the position open or to exit their positions.
How Leverage Trading Works
Leverage trading uses a margin, which is a deposit, to increase a trader’s exposure to given assets. In essence, a trader only puts down a part of their trade’s full value and they receive a loan of the rest from their provider. The leverage ratio compares a trader’s total exposure to their margin. BitMEX provides individuals with margins of up to 100:1. Nevertheless, the leveraged amount that a given trader has access to is dependent on their initial margin, which is the quantity of BTC that one has to deposit prior to opening a position, as well as their maintenance margin, which refers to the BTC quantity that they ought to hold in their account to ensure that a given position remains open. Traders of cryptocurrencies who wish to leverage are presented with two options including going long and going short. In this case, going long refers to opening a long position by purchasing a contract based on the belief that its value will increase. On the other hand, going short involves selling a contract based on the belief that the price will decline, with the option of purchasing back the contract at a later date when the prices are lower.
When a position is opened, the provider holds a portion of the trader’s account balance as collateral for the borrowed funds during leverage trading. In cases where the trader’s trade becomes a success and he or she closes the trade at a profit, the provider returns the held collateral to the trader’s account and the gained profits with a deduction of any applicable fees. However, in cases where the trader experiences loss as a result of negative movements in the market, the provider closes the former’s trade automatically and any held collateral is liquidated at a certain market price referred to as the liquidation price.
How Leveraging Works on BitMEX
Step 1: Depositing funds into a BitMEX Account
After creating a BitMEX account, traders are required to deposit money in their account. This is done by clicking on the “Account” tab that is located at the top of the dashboard, which will allow one to access his or her wallet. Within the wallet is a “deposit” (green in color) button that should be clicked, followed by copying of the wallet address or a QR code scan. The address can then be used to deposit bitcoin into the user’s BitMEX account.
Step 2: Go to the trading page
The trade should then proceed to select the “Trade” tab on the dashboard, which will open the trading screen. The trader will then proceed to select a crypto that they wish to trade, which could be Ripple, Litecoin, Ether, Bitcoin Cash, Cardano, and bitcoin, among others.
Step 3: Enter your position’s details
The left side of the trading screen has an Order box. The trader is supposed to choose the type of order they wish to place in this box. The diagram below shows the selection of a Market Order. After selecting the order type, the trader proceeds to enter the amount that they want to sell or buy in US dollars, which is the quantity of trade.
Step 4: Set leverage
Users are provided with a slider in the Order box, as shown in the diagram below, that they use to set a level of margin that they desire for their position. Case in point, the leverage in the example below has been set to 5X. Understanding the implications of the leverage, it is important for traders to exercise much caution when adjusting the margin.
Step 5: Review the transaction details
It is critical to take time and review the details entered for the transaction prior to proceeding with the transaction. In this case, the amount included in the “Quantity” field indicates the value of the trader’s position, including the leverage, in case the trader adjusted the leverage. As such, if the trade is using leverage, then the risked amount should be less than what is shown in the “Quantity” field. On the other hand, the “Cost” field shows the amount that a trader can lose in case the market prices drop. The “Order Value” demonstrates the position’s value in bitcoin.
Step 6: Opening of the position
In the case where the trader wishes to go long based on the belief that the market price will increase, they should select “Buy Market”. However, in a case where the trader believes that the market prices will decline and wishes to go short, they should select “Sell Market”. After making the appropriate selection, a screen will appear that requires confirmation of the order. On this screen, the trader is given an overview of details that ought to be confirmed, including the estimated liquidation price, cost, order value, and the level of leverage. All the details should be carefully reviewed by the trader before he or she clicks on “Sell” or “Buy” to confirm the order.
Ways to Manage Risks when Trading on Bitmex
As established before, there are various risks that are associated with leverage trading on BitMEX, which ought to be highly considered before setting the leverage level, or even decision whether to use margin trading or not. Trading with leverage should be avoided unless one has a clear understanding of the markets and the involved complications and risks. This section provides various tips that traders could embrace when considering trading using leverage.
To start with, it is important to understand that practice makes perfect. In this case, BitMEX provides users with Demo accounts that provide them with practice environments that offer the same feeling as the actual trading. Traders should utilize the demo accounts prior to risking actual funds in a trade. Such accounts allow traders to familiarize themselves with the executing, placing, and canceling orders by providing them access to a simulated marketplace. Another consideration that traders should make with regards to minimizing risk involves starting with small amounts. Traders should only make small deposits during their initial trades, whether they are considering engaging in leverage trading or not. This way, the trade will be able to minimize his or her losses in case places the wrong trade or the market moves against him or her. Traders can also minimize their risks by limiting their leverage. It is integral to understand that as much as a higher leverage may provide traders with high returns if the market moves in their favor, a failure could lead to very large losses. As such, it is important to consider putting in place limited leverage levels so that in case of a loss, the trader only incurs minimal losses.
Moreover, instead of spreading oneself over various markets, traders should consider choosing and focusing on a single market, such as the XBT/USD and put in place increased efforts towards understanding the trends and price movements of the market. Trying out different markets provides a trader with limited time to create a better understanding of each of these markets, hence increasing the risk of making mistakes and experiencing losses. It is also significant for a trader to understand his or her order, especially during the first trades, prior to confirming them. Particular attention should be paid to the “Cost” field as it depicts the amount that the trader would lose if the market went against him or her. Instead of Market trades, traders on BitMEX should consider using Limit trades. While market trades are charged a taker fee of 0.075%, Limit trades receive a 0.025% rebate. Last but not least, it is important for BitMEX users who are not familiar with online trading or leveraging to avoid leveraging or use the services of expert traders.
It is evident that BitMEX provides users with a highly interactive platform from which they can trade on all currencies, with all the payments made in bitcoin. One of the distinctive features of the platform is leverage trading, which could prove highly beneficial for experienced traders, but a major challenge and source of magnified losses for inexperienced traders. It is important for traders to consider gaining much information about the markets prior to making leverage trades. Traders are also provided with the option of setting up limits on their trades, which minimizes the portion of their capital that they are likely to incur in terms of losses.
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