This basic information can be useful for those traders who would like to start trading at BITMEX.
Based on capital available, Bitcoin volatility, your risk management and trading style define your strategy:
- Perpetual Swap: Scalping/Swing trading. Best suited for agile traders with small capital and minimal market exposure who are willing to take high risks in exchange for quick profits. Procedure is simple and resembles spot trading: identify entry point and leverage, set your limit and stop orders accordingly. Take your profit or loss. Done.
- Perpetual Swap: Position trading. Well suited for experienced traders who have sufficient capital to provide liquidity and are willing to take extra risks of extreme price swings. These risks, however, if calculated and hedged properly can be the source of high profits for successful trader. Having capital available for you to risk and Bitcoin volatility as inputs, calculate your order sizes, interval, spread and set market neutral (both market sides) order pairs grid accordingly. If price stays within your spread, you take immediate profits. When market is trending, you are starting to build your position and your unrealized loss is growing. At this stage, your profits are the funding which you receive as an interest for provided liquidity and maker fee you receive from BITMEX. As price go further you have to monitor your risks and decide whether you increase your position, partially close it or even liquidate. Increasing your position will move the average price of your position in direction of the trend and will increase your profits when trend will change direction. If you decide to take extra risks by increasing your position for more profits, you can leverage. Risk hedging is done by opening corresponding order at spot market or buying/selling futures contracts. When price returns below or above entry/average price of your position you close position and thus booking your profits.
For more details on swap and futures trading see BITMEX Trading overview.
BITMEX Basis Trading Strategies
Courtesy Arthur Hayes
Co-Founder & CEO, BitMEX
Futures vs. Spot
Buy Bitcoins at spot.
Sell same amount of futures contracts.
At futures expiry, sell the remaining Bitcoins.
Consider BITMEX 1% margin requirements. If the price rises, your position is at risk of being liquidated.
The basis captured is your profit. You must hold the trade until futures contract expires to realize the full amount.
Swap vs. Spot
Buy Bitcoin at spot.
Sell same amount of XBTUSD contracts.
Take profit or close position when you expect funding will turn negative.
The funding received. A positive funding rate means that longs pay shorts every eight hours. Since May 2016, Perpetual Swap XBTUSD shorts have been paid a total of 37.60% of interest (47.16% annualized). When the funding rate goes negative, you lose money. Watch your trade closely and unwind it as necessary.
Sell Futures vs. Buy Swap
Sell futures contracts.
Buy same amount of XBTUSD contracts.
If you place the trade when futures basis is positive, wait until expiry, and then sell the XBTUSD contracts. If you plan to trade futures basis, wait for it to fall sufficiently, then buy back futures and sell XBTUSD Swap to unwind the trade at a profit.
If the futures basis decline is greater than the interest you pay being long swap you are in profit.
Buy Future vs. Sell Swap
Sell same amount of XBTUSD contracts.
If you place the trade when futures basis is negative, wait until expiry, and then buy back swap contracts. If you plan to trade futures basis, wait for it to rise sufficiently, then sell futures and buy back swap to unwind the trade at a profit.
If the futures basis rise is greater than the interest paid being short swap you are in profit. The interest rate differences are small. To earn a considerable return on equity use leverage.
Traders willing to automate their trading can make use of Application Programming Interface provided by BITMEX.
BitMEX Market Maker an adaptation of the popular Liquidbot, written in Python, can handle simple market making tasks like order calculation, order placing, order relisting and spread maintenance.
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