BitMEX is a peer-to-peer trading platform for multiple cryptographic assets, including BTC and ETH, through what is known as futures or derivatives contracts. Founded in 2014 by HDR Global Trading Ltd. and incorporated in the Seychelles, BitMEX was established by three co-founders with a shared passion for cryptocurrency.
These BitMEX co-founders include outspoken cryptocurrency personality and ex-banker Arthur Hayes (CEO), mathematician and computer scientist Ben Delo (Chief Security Officer), and professional programmer Samuel Reed (Chief Technology Officer).
BitMEX isn’t just another cryptocurrency exchange like Binance or Bittrex. Instead, BitMEX is a trading platform which offers derivatives trading. As a result, users of BitMEX’s platform aren’t buying the underlying asset, rather, they are just trading a contract for it.
So, what makes BitMEX so popular, what is leverage trading on the BitMEX platform, and how do you get started trading on BitMEX?
Find out in Blokt’s complete BitMEX exchange review for 2019, where we’ll cover going long and selling short on BitMEX, closing positions, platform security, customer service and more.
Trading with Leverage
Before we dive in, let’s examine what trading with leverage is, and specifically, what this means for users of the BitMEX trading platform.
Leverage is defined as borrowing capital against an initial margin, to magnify the level of returns realized from a given trade. Trading with leverage is incredibly common on foreign exchange markets, as for most traders making frequent trades, using their own capital alone would yield very low profits.
BitMEX features exceptionally high leverage of up to 100x on XBT contracts, which means users could effectively buy 100 contracts of Bitcoin with just 1 BTC of actual funds, called ‘initial margin’ within the platform.
Therefore, traders trading with 100x leverage in this example would make profits equivalent to those if they held 100 BTC, as opposed to just 1 BTC. Similarly, traders can use 50x leverage, all the way down to 2x, or alternatively, just trade using their original funds.
It quickly becomes apparent why leverage trading has become so attractive to cryptocurrency traders on BitMEX, as the gains can be astronomical in proportion to a traders capital. However, leverage trading is not without its risks, which we’ll examine later.
BitMEX supports a wide range of jurisdictions, serving customers in 197 countries worldwide. However, to comply with regulation, BitMEX is currently closed to U.S. customers.
Asset Support and Contracts
BitMEX offers a wide range of contracts for multiple different assets within its platform, all settled in BTC.
Currently, there’s only one way to deposit funds into a BitMEX account, and that’s through Bitcoin. Users should note, that instead of the ticker symbol ‘BTC’, BitMEX, alongside several other professional trading platforms, use the ticker ‘XBT’ – but to all intents of purpose it’s exactly the same.
So, to trade on BitMEX, users will first have to have Bitcoin, as fiat deposits aren’t supported on the exchange. As BitMEX is recommended for fairly advanced traders, most will already know how to buy Bitcoin. But for those traders who don’t, read Blokt’s guide on how to buy Bitcoin.
Supported Crypto Contracts
Now is a good time to explain how contracts on BitMEX actually work. Unlike other cryptocurrency exchanges, such as Binance, traders on the BitMEX platform aren’t actually buying the underlying asset.
For example, trading Bitcoin on BitMEX doesn’t give users any claim to actual Bitcoin. Instead, traders are buying contracts for that asset, settled in the future.
BitMEX has a number of contracts available, for a wide range of cryptographic assets. These include eight of the top 10 cryptocurrencies by market cap, however, the most traded contract by far on BitMEX is Bitcoin (XBT).
Currently, the following assets and contracts available on BitMEX are:
Settlement for all contracts is in Bitcoin
For example, if users close a successful trade on the Ethereum futures contracts, they are credited with XBT back into their BitMEX wallet once trading fees have been deducted. This can then be withdrawn and sent to a third party Bitcoin wallet, but you will only ever receive Bitcoin at the close of a BitMEX trade.
Signing Up to BitMEX
Now we’ve been through some of the fundamentals, let’s get started with trading on BitMEX. Signing up for a BitMEX account is very simple, and only requires users to provide an email address.
Once users have verified their email address, they can deposit funds and begin trading immediately, with no further KYC or AML requirements. However, it’s worth users setting up 2FA to ensure no one can access their account.
Opening a Trade on BitMEX
Once traders have credited their account with Bitcoin, they may start trading any contract on the BitMEX platform. Although there are eight contracts to choose from, we’ll focus on XBT perpetual contracts, as they’re the most highly traded contract.
BitMEX is distinct from other exchanges because as we’ve briefly explained, users don’t buy the underlying asset. Whilst this opens up the potential for a total loss, as we’ll explain later, it also allows users to either go long on a position or sell short.
So, what does this mean, and how can traders open a long or short position on BitMEX?
Going Long on BitMEX
Opening a long position, called a ‘Buy/Long’ on BitMEX, means that traders expect the price of the underlying asset to increase over time. On BitMEX, investors who aren’t interested in owning the underlying asset itself, such as Bitcoin, can still speculate and profit from positive price movements.
Let’s open a long position on BitMEX using the following steps:
- Step 1: Double check your available margin in the top right corner, and then navigate to the contract you want to trade using the tabs at the top of the screen.
- Step 2: Decide if you want to open a limit order or a market order. Simply put, a limit order lets traders specify what price they want to buy in at, whereas a market order will simply execute at the last ‘ask price’.
Usually, you’ll want to time your buys and set a limit order. In our example above, we’re going to use half of our margin to open a trade of 26 XBT perpetual contracts, at 100x leverage – note the position of the leverage slider on the left-hand side.
- Step 3: Click ‘Buy/Long’ and confirm your trade in the lightbox which appears. Read this information very carefully – and pay close attention to the liquidation price. If XBT drops to this liquidation price, your position will be closed at a loss. If everything looks ok, click ‘Buy’.
Once your order fills, you’ll get a pop-up notification telling you it’s filled, and your position will be shown in the box at the bottom of the trading interface. Now, you can track your ROE, which is ‘Return on Equity’, change your leverage, or close your position. Note the red highlighted boxes in our example above.
When users open a short position on BitMEX, called a ‘Sell/Short’, they are essentially expecting the price of the asset to decline over time, from the price it is now. In traditional markets, this would involve an investor borrowing a stock or assets they don’t own, selling it immediately, then repurchasing more of the stock once it’s declined in price.
Opening a short position on BitMEX requires the following steps:
- Step 1: Like opening a long position, users should ensure that their account has enough margin to make a trade, which is displayed in the upper right-hand corner of the BitMEX interface.
- Step 2: We’ll open another limit order for this trade. Navigating to the asset you wish to trade, enter the number of contracts you want to sell in the upper box, and select your desired margin. Then, although it may seem counterintuitive, press the ‘Sell/Short’ button.
Once you’re happy with the details of the trade, press the sell button on the lightbox which appears. Now, you can track the details of your position, including profit and loss, in the same way as step ‘3’ in the long position.
Closing a Position on BitMEX
Closing a position on BitMEX is nothing like buying and selling on exchanges such as Binance, where users own the underlying asset and must sell it on the exchange. In contrast, the ‘Sell/Short’ option on BitMEX is for opening a short position, not closing an existing position.
This could cause confusion for new users and can be a potentially costly mistake. Instead, here’s the steps involved in closing a position on BitMEX:
- Step 1: Users should navigate to the trading screen of the asset which they have an open trade of using the tabs at the top of the interface, in our case XBT Perpetual contracts, and scroll to the bottom where they will see their open positions.
- Step 2: You may have multiple positions open, so once you’ve selected the position you want to close, you now need to decide between closing at market price, which is the last peer-to-peer bid, or setting a limit ask for your position, by entering a close price in the box to the left of the ‘close’ button.
- Step 3: Having selected a close method and specifying a price, users can either click ‘Close’ or ‘Market’ to sell their position. A market sell will close almost instantaneously, but you could get less ‘realized profit’ than you expected from the trade.
Trading Fees on BitMEX
BitMEX works on a maker-taker funding model, which sees lower fees and even reimbursements for market makers, and larger fees for market takers. There are no trading fees on upside or downside contracts, and other than Bitcoin network fees, there is no charge for withdrawing or depositing from BitMEX.
Here are the major fees on the BitMEX platform. Negative fees mean that users receive a rebate for that value.
Perpetual contract fees:
|Contract||Leverage||Maker Fee||Taker Fee||Long Funding||Short Funding||Funding Interval|
|Bitcoin (XBT)||100x||-0.0250%||0.0750%||-0.0617%||0.0617%||every 8 hours|
|Ethereum (ETH)||50x||-0.0250%||0.0750%||0.0100%||-0.0100%||every 8 hours|
Futures contracts fees:
|Contract||Leverage||Maker Fee||Taker Fee||Settlement Fee|
|Bitcoin Cash (BCH)||20x||-0.0500%||0.2500%||0.0000%|
Liquidation and Bankruptcy
Liquidation and bankruptcy are two incredibly important concepts, which most BitMEX exchange guides won’t explain to traders in detail, despite being fundamental to the trading experience on BitMEX.
Whilst it is impossible for users to lose more funds than what they opened a trade with (their initial margin), they may find themselves subject to liquidation.
When the ‘Mark Price’ of a contract a trader has an open position on falls below the liquidation price for long positions or conversely rises above the liquidation price for shorts, the maintenance margin point will have been exceeded, and the BitMEX Liquidation Engine will close the traders position.
As cryptocurrency markets experience such high volatility and move so quickly in either direction, these liquidation events can occur in the blink of an eye. This is especially true if users are trading with higher leverage, because whilst a high leverage magnifies profits, it likewise magnifies potential loses.
That said, traders should be highly aware that their balance can go to zero from a succession of unsuccessful trades, and unlike holding the actual underlying asset, there’s no chance of them getting their funds back.
Is BitMEX Secure?
BitMEX has one of the best security records of any trading platform in the crypto industry. Its proactive approach to security includes a generous bug bounty program, alongside several other security measures for user wallets, system security and its trading engine.
BitMEX operates multi-signature deposit and withdrawal methods, which means that every single address associated with a BitMEX account is multi-sig, and funds are kept offline. In the event of a system-wide breach, there wouldn’t be enough private keys available for a hacker to access funds.
The majority of funds kept on BitMEX are kept in cold storage, and private keys are never kept in cloud storage. Likewise, BitMEX manually verifies every single withdrawal of funds from the exchange to ensure they are legitimate.
System-wide security on BitMEX is secured using Amazon Web Services’ (AWS) cloud powered security. Whilst not entirely in keeping with the tenets of decentralized security, the integration of AWS requires multiple authentication methods to access sensitive systems and data, ensuring the high integrity security of BitMEX’s systems.
Trading Engine Security
BitMEX’s proprietary trading engine is the first of its kind, and really showcases the exchange’s commitment to security.
The trading engine performs a full risk assessment after each order is placed, where it measures several metrics to ensure that all accounts in the peer-to-peer system sum to zero. If they don’t, trading is halted until the exploit is found.
The BitMEX Insurance Fund
BitMEX has a large insurance fund, at the time of writing over 22,000 XBT, which has been implemented to prevent unfilled liquidations occurring before a user’s open order is forcibly liquidated by BitMEX’s auto-deleveraging system.
This may happen when there is inadequate liquidity on the peer-to-peer exchange to fill an order, despite the underlying asset falling below a users liquidation price.
The insurance fund grows from liquidations which have been successfully carried out at the market price, which is greater than the bankruptcy price of the trader’s position.
Crucially, the insurance fund is used in periods of high and intense market volatility, where assets make rapid price swings and close out multiple traders positions, resulting in the exchange becoming backlogged.
This did recently occur, and the BitMEX Insurance Fund failed to execute correctly, resulting in around 200 users having their positions closed prematurely on XBT and ETH contracts. However, BitMEX issued a public statement to all those affected by the event and provided full reimbursement.
BitMEX Customer Service
In addition to the BitMEX Knowledge Base and extensive F.A.Q’s, BitMEX also have a large support portal which features answers to many of the most common issues users face on the exchange.
Whilst users can open a ticket for more advanced issues, unfortunately, there is no live-chat option, and in busy periods users may have to wait several hours before their questions are answered.
Despite this, the BitMEX support team doesn’t give canned responses and will look into users concerns seriously and provide useful and unique solutions.
Likewise, BitMEX regularly updates its community members through its blog, and platform announcements, in which the BitMEX team publishes comprehensive cryptocurrency research reports, trading announcements, API announcements and alert its users of any exchange downtime.
Conclusion – Should You Trade on BitMEX?
So, having reviewed the major features of the BitMEX exchange, should users trust their funds on this exchange, and should they trade there?
Overall, BitMEX is the number one trading platform for cryptocurrency futures and derivatives. This comes as a little surprise, as apart from being first to market, BitMEX has excelled in customer service, fund security, and ease of access.
Compared to some other derivatives platforms, BitMEX is lean on assets. Monfex, for example, features 12 asset contracts. However, BitMEX does cover 8 out of the top 10 market cap coins, and most of its trading volume is via XBT perpetual contracts, so there’s little incentive to add many more.
The BitMEX UI is busy, to say the least. This can be an incredibly overwhelming trading experience for those who are unfamiliar with derivatives exchanges. Despite this, the BitMEX UI does feature the best depth of information to professional traders within its interface. As derivatives exchanges aren’t suitable for beginner traders anyway, this is to be expected.
When it comes to the security and safety of funds, BitMEX really does position itself as a market leader and has gone above and beyond in maintaining proprietary security systems to protect its users. As a result, BitMEX has never had a significant security breach.
BitMEX’s customer service is generally excellent, and its support portal contains a wealth of information for most issues. However, the lack of a live-chat feature is likely to cause friction with some users who are having trouble during intense trading periods, where time is of the essence.
For seasoned traders, BitMEX offers one of the best derivatives trading platforms in the cryptocurrency industry. With ultra-high leverage opportunities and relatively low fees, professional traders can make some serious gains trading at BitMEX.
For beginners and intermediate crypto traders however, the risk is high. Magnified potential for gains also means magnified potential for loses. We recommend new users read BitMEX’s extensive documentation before diving straight into trading on the platform.