An Ultimate BitMex Margin Trading Guide
Trading cryptocurrencies like Bitcoin is increasingly becoming the most popular way to earn profits in the crypto sphere. Depending on your competency level and the trading method which you use, crypto trading can be highly rewarding or extremely risky at the same time. And, one such method is trading with leverage or margin trading.
Margin trading
Margin trading is a popular trading technique that investors choose to boost their trade value by borrowing the capital based on the crypto assets which they possess. This trading method is gaining huge popularity in the highly volatile cryptocurrency market.
With a strong focus on leveraged trading and derivatives, BitMex (Bitcoin Mercantile Exchange) is one of the most popular exchanges suited to more experienced traders. This is specifically useful for the experienced traders who do not have enough funds to perform larger trades but in reality, they are certainly sure about the specific direction of the highly volatile crypto market.
Considering you make your margin by utilizing money from a third party, margin trading or trading with leverage is equivalent to buying on credit. By amplifying trading results, this method allows traders to earn more revenue on their successful trades.
However, trading with leverage is not suitable for everyone, so it’s important that you should trade with caution. BitMex exchange platform offers contracts on a wide variety of cryptocurrencies including Bitcoin, Ethereum, Litecoin, Qtum, Ripple, Zcash, etc. This platform regularly changes and updates the contracts available. So, it’s important that if a trader is interested in a particular cryptocurrency, it makes sense to check the current platform offering in that asset. BitMex accepts Bitcoin deposits and offers maximum leverage of 100x. Currently, it offers margin trading for six cryptocurrencies, the most popular one Bitcoin with 100x leverage, and Ethereum with 50x leverage.
Let’s understand it with an example:
If you have 1 Bitcoin (BTC) to trade and you use 2:1 leverage, then you will be able to trade with 2 BTC instead of one. And, if you have 1 BTC and you use 100:1 leverage, you have the possibility to handle 100 Bitcoin instead of just 1 BTC.
The assets provided by the trader would work as a guarantee for the borrowed funds. Understanding this is essential to know how margin trading behaves.
When opening a position, there will be a threshold in which the trade would remain open, however, the position could get liquidated if the crypto market crosses the threshold. This is known as liquidation price. In short, this is the price at which your account balance or the amount of funds you are using is completely wiped out.
Example
If you have invested $100 with 25% leverage at a BTC entry price of $7500, then the liquidation price will be $6002.
BitMex provides its traders with a user-friendly calculator which helps them calculate their liquidation price, profits, losses, and more. This platform offers the possibility to trade with leverage to the traders, not all the cryptocurrencies have the same maximum leverage level.
Like, it offers leverage of up to 100x on Bitcoin contracts, 50x on Ethereum, and 25x on Monero, and more.
Profiting in a failing market
One of the key benefits of leverage trading is that it allows you to turn a bear market into a profitable opportunity. Let’s take a basic example for this:
Considering you owned 1 BTC in Jan 2020, when its value was on peak, say above $18737. Expecting the market to fail or crash down, you sold that BTC at this higher price point with an aim to buy back at a much lower price. Then you decided back to buy BTC in July 2020, when the market was worth $6695, you could have made a profit of $12,042 minus the transaction fee.
And, when you add leverage trading, this potential profit could have much higher than this. Suppose, you have traded with the leverage of 5:1, your profit could have been 5 times higher.
How does margin trading work on BitMex?
We all know that leverage means borrowing a certain amount of money to invest in something. It gives traders the power to trader to control a huge amount of money on a small deposit.
Let’s say, if you deposit one Bitcoin and use 100:1 as a leverage to open a buy order on BitMex, you are requesting to borrow 99 extra Bitcoins to trade. This way, your buying order value will be equal to 100 Bitcoins.
In other words, we can say, to buy 100 BTC worth of contracts, you just require 1 BTC of initial margin. This means, you can use 100 BTC now, so if the price of 1 BTC moves up by $100, you will profit 100x100, i.e. $10,000. On the other side, if the price for 1 BTC goes against you by $80, you will be losing your entire investment (80x100) and your position will be liquidated.
Let’s understand it with another example:
Say, the value of one BTC is 50 USDT and you are using a 10X margin on the BitMex margin trading tab. By this, you can easily buy ten BTC for the cost of one. Here, the exchange lends you the remaining amount using your 50 USDT as collateral.
So, here if the price of BTC increases by 10%, you can secure a 10% profit on ten Bitcoins.
Sounds great! Isn’t it?
But what if the price drops by 10%? Of course, you will lose all your collateral.
BitMex- the most advanced trading platform
Let’s look at the BitMex Platform:
Here, the left side panel is where you will enter your order and can set your leverage. In the center, you will see the charts, order book, buy and sell volumes, and recent trades. On the bottom side, your open positions will appear. And, on the top of the platform, you can choose the crypto asset that you wish to trade.
TrailingCrypto is one of the leading crypto exchanges trading platforms that offer trading with leverage operations on BitMex like Conditional Buy, OSO, OCO, Trailing Take Profit, etc.
Now the question is why BitMex remains the world’s popular crypto exchanges by trading volume?
You know, its popularity is mostly based on its favorable trading and withdrawal fee schedule, alongside providing the better BitMex support for margin trading and derivatives trading. Unlike other platforms, BitMex doesn’t support spot trading and according to the latest news, the BitMex exchange is planning to add spot trading feature soon.
BitMex trading contracts
Contracts represent what we buy or sell on the BitMex exchange platform without owning the actual currency. There are two types of contracts:
Perpetual contracts
This is the type of contract in BitMex which you will be trading primarily when you first start, especially when you are day trading on shorter time frame. These contracts don’t have any specific date at which they will expire. So, they are great for short term trading. Alongside, they have a variable interest rate where cash flow will be added or subtracted from your current equity. These contracts are renewed continuously and are known to be less volatile.
Example:
For having the ability to use these contracts, the trader has to pay a fee every 8 hours which will be 0.0015% for long position and lets you get a rebate of 0.0015% for short position.
Futures contracts
Basically, it is a contract/agreement between the buyer and seller to exchange currency at a defined rate in future for an agreed price. These contracts tend to have a fixed interest rate which makes them great for long term trading or shorter term investing both. The best part of these contracts is that they have a fixed rate which doesn’t fluctuate over time.
Trading on BitMex is quite different from trading on other platforms as these platforms allow you to trade the crypto coins in your account which means you directly buy or sell while executing orders. But on BitMex, you will open a position when you think that the price will go up, so as to gain the price difference as your profit of the trade goes successful.
You will be buying contracts for long and short positions, and the trade must be closed at some point which will be your target.
Methods of Margin Trading on BitMex
BitMex employs two different methods of margin trading:
· Cross Margin
· Isolated Margin
You can switch between one, and the other by adjusting the leverage slider on the ‘your position’ box located on the left hand side of your trading section.
Use cross leverage by moving the slider to the left and you may use isolated leverage for the remaining numbers shown as (2x, 3x, 5x, etc.)
Keep in mind that the isolated leverage doesn’t multiply your position automatically. Once you move the slider, it adjusts how much margin you can use. So, you need to change the quantity manually.
Let’s understand it with an example:
Say, your BitMex trading account contains $1000, and you move the slider to 3X which further means you can trade with $3000.
But in case of cross margin, you need not to worry about moving the slider. It will use all the funds available in your BitMex account automatically.
Example for cross margin:
Suppose your account contains $1000, and you want to use the 3X leverage. All you need to do is to put the input as $3000 in the quantity box, and your account is automatically set at 3X leverage. And, if you want 10X on your leverage, simply input $10,000.
By using, cross margin, you are eliminating the task of entering the leverage manually. However, if you do not want to use your entire balance, isolated margin may be the right choice for you.
Trading fees
The BitMex exchange is highly popular among trader for having some the market’s lower trading fees. Being, perpetual contracts, quanto futures, or traditional futures, the fee schedule is different for each BitMex exchange.
The supported cryptocurrencies at BitMex entail a different leverage margin and a different maker, taker, and the settlement fees. For Bitcoin Prepetual contracts running at 100X leverage, the traders cam expect to pay a maker fee of -0.025%, taker fee of 0.075% for a long and short funding of 0.0031%.
BitMex doesn’t charge fees on deposits and withdrawals of your Bitcoin. However, while transacting funds between accounts, traders have to pay the fee which is set automatically by the blockchain network.
Pros and cons of BitMex margin trading
Pros
· Leverage trading of up to 100x
· Higher security levels
· Very good selection of cryptocurrencies can be traded
· Low trading fee
· No deposit and withdrawal charges
Cons
· Not suited for the novice traders
· Deposits and withdrawals can be made through Bitcoin
Different types of orders at BitMex margin trading
To be successful on BitMex trading, it is important for the traders to know how to use different order types and other features while creating a contract. Orders are actually the kind of strategy used by the experts. Here are the popular order types which even the beginners can use to trade:
- Limit orders- This order type allows traders to buy or sell their contracts at a price set by them. This is the most widely used order type. People who use limit orders are called makers. They place order with a price which is different from the current price of cryptocurrency, both up and down.
2. Market order: With a market order, a trader buys any crypto asset directly, and at the best price of the order book. In this order type, investors are called takers. Unlike limit orders, which force the investors to wait so as to match the price set, the market orders allow instant buying.
3. Stop market order- This order is activated only if the price of crypto asset reaches at a point specified by the user. This tool is used by the traders to limit their losses. Generally, while placing the limit order, traders also set stop market order so as to buy back the limit position, and thus, ensure hedging against losses.
Other order types used by traders are:
· Take profit
· Stop limit
· Trailing stop
Note: BitMex not only allows traders to trade on the leverage amount but also enables them to earn profits on uptrends or the downtrends.
How to leverage trade on BitMex?
Follow the below simple steps to trade using BitMex margin trading:
· Register for the BitMex account
Go through the BitMex website and register your account by providing your email address and creating a password. Then, you will get a link on your email address which you will need to click on to verify. Once after doing this, make sure to enable 2-factor authentication.
· Deposit funds into the account
Now click on the account tab at the top of the screen to be taken to your wallet. Now click on the deposit button here available in green and copy your wallet address. You can use this address to deposit funds (Bitcoin) into your BitMex account.
· Navigate through the trading screen
Now, click on the trade link available at the top of your screen. It will take you to the trading screen where you can simply click on the tab of crypto which you want to buy or sell.
· Enter the details of your position
On the left of your screen, you will see the order box. Select the type of order you want to place. In this example below, we will be using Market order. Enter the quantity of trade, you want to buy or sell in US dollars.
· Set leverage
Use the slider available below the order box to set the leverage for your position. Here we will be setting leverage to 5x.
· Review your transaction details
Now, review the full details of your transaction. The quantity field here shows the value of your position, but as you are trading with leverage, the money you are putting at risk is lesser. The cost field here shows the maximum amount which you may lose on your position if the market moves against you. Order value shows the value of your position in XBT.
· Open your position
Click on ‘buy market’, if you think that the price will rise and you are going long. And, if you are shorting and you think market will fall, simply click on ‘sell market’. Now, you will see an order confirmation screen here containing information such as level of leverage, cost, estimated liquidation price, and the order value.
Make sure to review all the details before buying or selling any order.
Profit and loss case study
Let’s have a look at profit and loss hypothetical example when trading with leverage:
Going long with 10X leverage:
Assume the value of your position is 1 BTC, which is $10,000. So the initial BitMex margin requirements would be $1000.
Point to be noted:
While your profit can exceed 100%, your losses are limited to 100% of the BitMex margin requirements.
Going short with 10X leverage
In this example, we will be betting against the market, and going short. Assume the value of your position is 1 BTC, which is $8500, so the initial margin requirement here would be $850.
Some risk management tips
We all know that trading with leverage is risky and complicated, so remember the below points to minimize the risks:
· Start with smaller amounts
· Limit your leverage
· Pick a market
· Understand your order
· Make sure to use limit trades rather than market trades
· Avoid leverage trading if you are a beginner
Conclusion
For experienced traders looking for margin trading platform, BitMex is the obvious choice. It allows traders to make money from uptrends and downtrends. The exchange has gained huge popularity among experienced traders due to its enormous volumes and vast features. BitMex is a great exchange when you don’t want to risk too much, however would like to utilize trading leverage to earn higher profits.
If you want to trade BitMex, TrailingCrypto will be the right tool for you. With TrailingCrypto, you will receive one of the most accurate trading signals in the market. Check it out and don’t miss a trade anymore. With TrailingCrypto you will be able to receive notifications about entry levels for you to improve your trading strategy while using BitMex.
