BitMEX: How it Works and Risks Involved
Closely following the prevailing trend of the cryptocurrency market in recent times is enough to keep one busy. Especially when fully invested in the market, the swift fluctuation in prices is sometimes interesting enough to either give you palpitations or make you soar at others.
However, trading cryptocurrencies is definitely not much fun as of now, especially when all you can do is buy, then hold while hoping that its gets better. I mean, bitcoin falls and all other altcoins follow suit- how interesting is that? What’s more is that there are so many exchanges providing more teasing options of one benefiting from falling prices.
Well, there is actually a possibility of profiting despite the bearish mode of the market. It sure is possible when trading on a level of leverage. However, there are limited legitimate options out there willing to give this chance. One of such is BitMEX, which offers its clients the options of trading cryptocurrencies and futures at a 100x margin.
While the draw of BitMEX is basically the leveraged trading where you get earn 100% of your money back when you trade at a 100x margin, it is not an ideal platform for beginners. BitMEX offers a wide range of complexities in trading swaps ad future contracts. As such, despite being given the options of not maxing out your leverage, the losses can be quite excessive especially since it is a fast method- a bit difficult to keep track of.
You see, margin trading is basically the crux of trading in the market especially due to the volatility of the market and the difficulties in asserting price predictions. Therefore, delving into leverage trading without understanding the fundamentals is quite high risk. However, if you don’t mind a classic case of fast and furious with a touch of danger, you can start small.
Before we go on, we’d like to explain what BitMEX is and the technicalities involved with trading on BitMEX.
BitMEX is a crypto exchange launched in 2014 as a platform with different financial tools as its products. BitMEX majorly offers crypto derivatives as well as other advanced financial products to professional traders In addition, crypto margin trading for Bitcoin Ethereum and Litecoin are included in the range of products offered.
The platform basically offers players the opportunity to turn bearish state of market to a lucrative trading option. It provides a means of profiting from the declining prices while trading short.
How it Works?
To start with we have to dive into the range of services offered by the exchange. As mentioned above, BitMEX offers a range of derivative products such as future contracts as well as leverage trading.
Futures contracts, in every sense of the word, describes an agreement that majorly outlines the trading or buying of an asset on a platform at a particular in time in the future and at a predetermined price. Given the technicality of trading contracts, it is important to perform a fundamental and technical analysis on an asset before putting one’s money in. This exactly is where margin levels come in.
You see, noting the worth of a contract requires special skills such as price predictions and market analysis. Unfortunately, volatility of the market is majorly a factor that disrupts price predictions. Margin levels, on the other hand, makes up for this lag by determining liquidation points, how much leverage to be traded with and the premium trading price of a contract as compared to an underlying spot price.
Leverage trading basically gives investors enough leverage (more like larger quantities of money) to invest in futures contracts or other assets. BitMex offers its clients as low as 2-10x and as high as 100x leverage on some of its products. As such, a willing investor can earn as high as 100 times the amount he put in.
It sure sounds interesting. It, however, is considered a double-edged sword by many basically because it poses a relative amount of risks and benefits. This will be explained soon but before that, it is important to explain more about benefiting from the range of services on BitMEX.
To start with, the trading interface on BitMEX is a little different from that of exchanges like Bittrex or Binance and could be a tad confusing. The investor is required to register first- which does not require tedious documentation. The user is then required to make a first deposit which would be processed and made available in a few hours. The user can then move on to trading in contracts.
The confusing bit of this platform is the presence of new words or short codes that could look like code name used in the Secret Service. It basically offers a number of cryptocurrencies (such as ADA, Bitcoin Cash, Ethereum Classic, Ripple, Litecoin e.t.c) as futures contracts. So, in the case of Bitcoin Cash (i.e. BCHXBT), a user would see it as BCHHI8. It is, therefore, paramount to read through the platform’s “help database” thoroughly to avoid confusion.
Also, the platform offers these contracts with specified time frames. Some could be on daily basis, weekly or even monthly. This, in a way, ensures price stability on cryptocurrencies regardless of state of the market.
Taking the Plunge
As interesting and relatively easy trading on BitMEX seems, it requires a great deal of experience on dealing with leverages and futures contracts. This is basically because an experienced trader would note where to avoid over-margin of the initial capital and where to set up short and mid-risk investment with leverages.
A beginner would stand the risk of losing all the capital thrown into investing if he decides to leverage without watching out the proper entry point for each decision to be made. But then, everyone must have started somewhere right? Hence, it is advisable to start small for a better risk management practices.
It is important to understand that leverage trading on BitMEX requires total focus, consistency and ample planning to avoid closing out and losing too much. Trading with leverage is relatively as short as you want it and the charts could turn against you at any moment you are not paying attention.
BitMEX also offers different fees on each leverage and asset being focused on. This is basically one of the risks of trading without understanding the workings of leverages and margin levels. The exchange, for example, offers for a Bitcoin 100x leverage, -0.0250% maker fee, 0.0750% taker fee and 0.05% settlement fee. When an investor loses out on operating on leverage, the exchange would be required to pay up relatively high sums depending on the asset chosen.
The plus side of trading on this exchange is that it is quite safe. Given the susceptibility of crypto exchanges to hacking and other forms of malware episodes, BitMEX boasts of high security measures which would make a network breach difficult.