In this article we will explain what BitMex is, how it works and what are the risks and benefits of using the platform. Besides that, we will also explain how futures contracts work, how to open these futures contract in the platform, what leverage trading is and which are the risks and benefits of these trading tools.
What is Bitmex?
Bitmex is a cryptocurrency exchange that was launched in 2014 and it offers different financial products. Among these products we find cryptocurrency margin trading for Bitcoin, Ethereum and Litecoin up to 100x in the case of Bitcoin. In addition to it, the exchange offers cryptocurrency derivatives and other financial products for professional investors.
It is not a platform for beginners because it offers advanced trading options and services. For example, margin trading should be taken very seriously due to the fact that the cryptocurrency market is very volatile and price predictions are sometimes difficult to do.
Bitmex offers Bitcoin and other cryptocurrency futures contracts and leverage trading. Let’s understand what these services are and how they affect investors.
What is a Futures Contract?
These are derivative products that are an agreement in order to buy or sell a specific asset at a predetermined price at a specified time in the future. Bitmex offers cash settled futures contracts for several products that it offers.
The futures contracts involve various different mechanics that the user needs to know properly before investing. It is important to know how much one contract is worth, the position marking of the futures contract, the margin levels that determine how much leverage one can trade with and at what point the liquidation occurs, how and when the futures contract expires or settles, and the premium or discount that the futures contract trades at when compared to the underlying spot price.
How to Start a Futures Contract?
In order to start a futures contract, it is necessary to sign in. The platform does not require any specific documentation for verification. Once the user sings up within the platform, it can make the first deposit that would be available in just a few hours. Once it is processed the person can start trading the different kinds of contracts offered.
The platform offers various horizons for each product Some of them have daily, and weekly contracts. Once that the investor has decided which contract to choose, he just need to create it.
The main intention of futures contract is to manage the risk exposure. For example, if an enterprise pays its employees in Bitcoin, then it may want to have a contract with a stable Bitcoin price rather than to speculate with its future price.
What is Leverage Trading?
Leverage trading allows investors to have larger quantities of money in order to invest in a specific asset. For example, a broker or exchange can give to the investor 2, 10, 50 and up to 100 times the amount of money that the investor has. In this way, if an investor is quite sure about how a certain asset will move, then he can request this amount of money and place a bet.
In the case of Bitmex, it offers 100x leverage on some of its products. That means that the investor can buy 100 times more contracts than what he is able to pay for. But many experts call this trading method a ‘double-edged sword’, and we will explain why.
Risks and Benefits of Using Bitmex
The main benefit of trading futures contracts with cryptocurrencies is that it offers the possibility to leverage. Investors are able to trade with bigger amounts of money and realize larger profits than with its initial capital. But as we have mentioned before, there are several risks that we must take into account.
This tool is not as easy to use for beginners as the normal trading can be. It is important to have experience in leveraging and operating futures contracts. The investor must be experienced enough to avoid over-margin its own capital and setting up short and middle risk investment with leverage.
If an unexperienced investor places an important amount of money and decides to operate with leverage, then it has high chances of losing all of its capital and paying high fees to the exchange for the money borrowed. Bitmex offers different fees depending on the asset. For example, Bitcoin 100x leverage has a maker fee of -0.0250 percent, a taker fee of 0.0750 percent and a settlement fee of 0.05 percent.
Bitfinex is a high secure cryptocurrency exchange. It has important security layers that make of it a very difficult exchange to hack. As of today, Bitmex has never been hacked. Many other important cryptocurrency exchanges have been hacked several times before. For example, MtGox is the most famous case. It was the biggest cryptocurrency exchange at the moment and when it got hacked Bitcoin price suffered from a crash and a long period of stagnation.