What is BitMEX? The Global Standard for Margin Crypto Trading

What is BitMEX? The Global Standard for Margin Crypto Trading

Within the cryptocurrency community, there is often confusion over whether or not one can short sell bitcoin via public online exchanges, and not just bet against the price increase of cryptocurrencies through institutional-grade crypto futures. The answer is indeed a “yes,” but there are still some traditional some roadblocks.

Regulation and usability between jurisdictions are typically the main issues among users when it comes to betting on a decrease in an asset’s potential value. BitMEX, otherwise known as the “Bitcoin Mercantile Exchange,” is an online cryptocurrency exchange that enables comprehensive contracts for user trading to be done only through Bitcoin.

BitMEX differs from most other exchanges or liquidity providers in the sense that it enables theoretical trading via contracts almost like a novel derivative within the cryptocurrency ecosystem. Each contract can support various levels of margin, (an actively sought out attribute in cryptocurrency) with the main bitcoin to USD contract pair offering up to 100x margin.

A Contract-Based Exchange: What Does That Mean?

It’s important to understand that BitMEX differs from many of the mainstream cryptocurrency exchanges. Many of these exchanges offer markets where ownership of a said cryptocurrency is retained. In these instances, assets like bitcoin can then be thoroughly exchanged for something like ether. BitMEX works differently, focusing on a contract set up, which has both its pros and cons.

The main advantages of instantiating a contract-based system for trading an asset is that users don’t actually have to ever physically “own” an asset; they can instead trade a contract that is representative of its ownership. In some cases this enables a deeper level of volume since reserve and fractioning can be used by the exchange.

Contracts can also offer higher levels of margin. While on many exchange one can simply purchase bitcoin or ether on 5x, or even 10x margin (meaning a users pays 1/x amount of the position and are able to hold a higher position which offers a much larger upside), BitMEX is one of the only exchanges that enables contracts where you can use up to 100x margin. 

On the flipside, a contract-based exchange also offers some downside. Although margin can in many instances be a great opportunity, it does offer some risks. Contract-based trading is also much more complex than regular asset trading; there are additional fees, sometimes ones that you’re not aware of, as well as tricky to understand concepts related to the actual trading processes. It’s best to thoroughly research how the contracts work and make sure there’s a complete understanding prior to any trading.

Offered Contracts

BitMEX offers contracts for digital assets, or cryptocurrencies, on its exchange in various forms. Prior to any further distinction, an immediate differentiation should probably be noted, which is the “time” aspect within contracts. BitMEX offers two main services in this regard:

Perpetual Contracts: Perpetual contracts are simply agreements that function as any other contract does, however, it does not have an expiry date. Within contracts trading, contracts often have a certain expiry that says when, by who, and for how much a contract needs to be executed at. BitMEX offers perpetual contracts which once owned can be held on to for as long as needed. There’s no required liquidation date; however, dependent on the size and subsequent position, there will be other liquidation requirements such as “margin call.”

Date Contracts: Date contracts are exactly like futures contracts, a booming topic in crypto, just not explicitly called futures. These contracts are structured to execute on a specific date and are agreements that require a purchaser or seller to buy or sell an asset (Within BitMEX, this “asset” will be a certain cryptocurrency) at a specified price. However, BitMEX does maintain a system where users are able to close out positions immediately if price margin can’t be held.

BitMEX Exclusive Products

In addition to the aforementioned products that enable trading of a specific cryptocurrency through the form of contracts, BitMEX also offers its share of exclusive products, that are unique to any other exchanges. These products include “directional-side” contracts. Although seemingly complex at first glance, these services are relatively simple once broken down, and come in two primary distinctions:

BitMEX UP: This form of contract is used to enable participation in any price appreciation of an underlying vehicle. The contract allows traders to engage in, as BitMEX states, “market rallies,” and can be used in combination with other vehicles on the BitMEX platform to target things like simple appreciation and depreciation in price.

BitMEX DOWN: The BitMEX DOWN contracts offer traders the ability to engage in bets that an underlying asset will decrease, similar to a short sell. The BitMEX DOWN contracts cannot be short sold either, only placed in a position of net-long.

Leverage and Trading Pairs

Currently, the highest leverage that can be employed on a contract is 100x on the Daily Bitcoin/JPY Futures Contract as well as the BitMEX listed Bitcoin/USD Perpetual Contract. Different pairs on the exchange offer different levels of maximum margin, however. This ranges in many cases from 20x maximum margin on TRX/USD to a 50x maximum margin on ETH/USD.

Currently, BitMEX offers a variety of different trading pairs and combinations that when placed in combination with one another can be fairly effective. The following are the current trading pairs (matched and traded against certain subsequent pairs, either USD, JPY, or BTC):

Protocols, Restrictions, and Liquidity

BitMEX is an option for those looking to trade futures and cryptocurrency-based contracts immediately, however, the protocols for participation are in some cases limited. Currently, the largest downside for BitMEX is that it is not available for United States traders. Additionally, the standard protocol for deposits and withdrawals on BitMEX is bitcoin deposits. In regards to liquidity, BitMEX has maintained a very large liquidity pool, and has comfortably surpassed a daily average volume of approximately $1.2 billion according to other analytics sites.

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