BitMEX Margin Trading – Explained For Beginners
The Bitcoin Mercantile Exchange is the world’s No1 Bitcoin broker for margin trading. Although some other big brokers also offer leverage, BitMEX is outstanding: With up to 100x leverage the broker fulfills the wildest dreams of real gamblers. However, the platform of course first but foremost serves serious traders who exactly know about the right amount of leverage to use in their trades, respecting reasonable risk to reward ratios.
Tip: BitMEX Trading Strategy Course – If you haven’t developed a profitable BitMEX trading strategy yet, we can recommend giving a professional Bitcoin margin trading course a try. We’ve recently tested Bitcoin Trade Group – a margin trading group of 3 experienced pro traders. They share their trade setups in live trades that members can copy trade. Market reviews and live streams and a lot of well made educational stuff. Most members actually benefit from the group, with their trading accounts growing nicely (about 20%/month on average). Check our review here.
What Makes BitMEX Outstanding Among Bitcoin Brokers
BitMEX comes with some special features making the broker one of the most popular ones due to their liberal policies.
Traders can cashout their gains without any restrictions which is a feature not every broker provides. Moreover BitMEX has a highly professinal trading engine offering all kinds of advanced order types a professional trader might need. We’ll explain those further below.
One of the best characteristics of BitMEX is the easy and “anonymous” sing-up. Other than traditional financial brokers they don’t ask for any personal information, just an email, password, name and country of residence. An ID verification not only isn’t required – there is even no option for that in the user accounts.
2 other points worth mentioning is the broker’s high liquidity – they are on top of Bitcoin trading activities worldwide, so you can expect your orders to get filled. The last big benefit we want to mention is the flawless trading engine, we’ve never lived any markable glitches so far.
The 4 Major Reasons Why Pro Traders Prefer BitMEX Margin Trading To Other Brokers
- Low fees* (which makes scalping also profitable = small intra day trades)
- All professional order types provided
- Very user-friendly, easy to handle interface
- Trading engine works well, no glitches
*Fees are low beyond the use of high leverage. In that case it’s different. We’ll talk about the fees in detail further below.
How To Use BitMEX
Trading on BitMEX is a bit different to trading on other brokers. On other “real crypto brokers” (meaning no CFD brokers) you directly trade the coins in your account – meaning you directly buy or sell Bitcoin when you execute orders.
Quantity in USD = Contracts. Your calculated position size can exceed your account balance. Learn further below how to calculate position size.
On BitMEX you open a position in the direction you think the price will go, in order to gain the price difference as profit in case the trade get successful. You are buying contracts (USD units) for long (buy to sell higher) or short (sell to buy lower) trades and every trade must be closed at some point (your target).
At other brokers you can buy Bitcoin and you can just keep them in your account, so there is no need to sell them again if you don’t want to. At BitMEX a long trade (buy), has to get closed at some point (by a sell order), otherwise the position would stay open for ever and your equity would be stuck in this trade.
While you have money in the open long trade, you cannot withdraw it (in BTC). While on other brokers you can withdraw your Bitcoins if you have bought them in a buy order.
Although the “normal” trades on BitMEX have no expiry or settlement, you have to close them at some point to get your money. If you are in a lucky trade where price just goes higher and higher for weeks you might not close your long trade during that time, so that would be a case where it stays open for quite a while.
But you get the point – that pressing the buy button on BitMEX is something different to pressing the buy button on other brokers or exchanges.
It might look a bit difficult or confusing if you’re used to trade on other brokers and now look at the trading widget in the BitMEX user interface, but once you’ve got the system it’s fairly simple how it works. This is also the way how Forex margin trading works. So BitMEX is not a coin exchange in that sense – it’s a highly professional derivatives broker platform specialized in Bitcoin margin trades.
On BitMEX You “Long” Or “Short”
When pressing the buy/long button, you open a position by buying at a certain price with the intention to sell higher, at a target you should have defined in advance within your trade setup.
Opening a long position should usually consist of 3 parts. First you press the buy/long button to open the position; as soon as the order is filled you set your stop loss order. The third step right afterwards is to set a take profit order. So either your stop loss or your take profit order will close the trade. Those are the basics of a simple long trade.
Shorting on BitMEX works similar to long trades, but in the other direction.
So you push the sell / short button to open a short position with the intention to buy back lower and keep the price difference as profit in case the trade will be a winner.
After your sell order has been filled you set your stop loss order (buy order in this case) somewhere above your entry and your take profit at your predefined target.
So when a trade is running you should see your stop loss order being placed on one side of the price line and your take profit order on the oder side until one of them gets executed.
Once one gets executed, you should delete the remaining order to make sure this won’t accidentally open another position.
No matter if you long or short, in both ways you make money if the trade runs well. Your gains is always the difference between entry and exit.
At leveraged positions gains are higher than without leverage, but also risk is enhanced during the trade.
Fees – How BitMEX Makes (A Tremendous Amount Of) Money
Generally there are two kinds of fees regarding a trade. A trade consists of two parties. One has made an offer and another one accepts the offer. The one who makes the offer on a broker platform is simply the one who’s order was first put into the order book.
So if you publish an order that is not being filled right away (limit order), then your order is most likely first just placed in the order book, waiting for someone to accept the offer. As soon as somebody else sets an order that fits yours, the deals is being made. In this case you where the maker, the other one was the taker. Here are the BitMEX fees you guys have to pay:
If you set limit orders:
-0.025% per leverage
(Negative fees – BitMEX pays you 0.025% per leverage)
5 x leverage = 5 x 0.025% = 0.125
100 x leverage = 100 x 0.025% = 2.5%
If you set market orders:
0.075% per leverage
(Positive fees – you have to pay)
5 x leverage = 5 x 0.075% = 0.375%
100 x leverage = 100 x 0.075% = 7.5%
“Normal” BitMEX Margin Trades Are Called “Perpetual Inverse Swap Contracts”
BitMEX has 2 different kinds of products you can trade. For “normal” Bitcoin long and short trades you choose the Perpetual Inverse Swap Contracts.
In that case you do long and short trades based on your margin and you can choose as much leverage as you like. Perpetual Contracts trade at the underlying reference index price (current Bitcoin market price). So this means nothing else than standard Bitcoin margin trading on BitMEX.
BitMEX Futures Contracts
The other product you can choose on BitMEX are Futures contracts. BitMEX is one of the few “real” Bitcoin brokers where you can trade BTC Futures. Please read this article to learn what exactly are Futures.
So in this guide we’ll stick to the Perpetual Inverse Swap Contracts – which is so to say normal Bitcoin margin trading on BitMEX:
What is XBT? Is it the same as BTC?
Yes, it is exactly the same. The reason why some brokers use XBT instead of BTC is because there are certain common abbreviations for financial products for broker listings. The X in front refers to the fact that something is not a currency with specific national origin. It’s used in the ISO 4217 codes for metals like XAU (gold), XAG (silver) and XPT (platinum), for instance. Also BTC could conflict with BTN which is the abbreviations of Bhutan’s currency, however on the real Bitcoin brokers Bhutan’s currency is usually not in use, that might be the reason why many brokers don’t care and use “BTC” in their listings.
How BitMEX Margin Trading Works in Detail – Step by Step
Important Trading Terms
First of all let’s look at the terms you should know:
- Capital = your account balance
- Entry = price at which you go in the trade
(buy or sell price at either long or sort position)
- Stop Loss order = closes a position that is losing
- Position Size = number of BitMEX contracts (1 contract = 1 USD)
In other words: It’s the amount of money in USD you put into a single trade
- Risk Amount = Part of your account balance (capital) you lose on the trade if the stop loss gets hit. e.g. if you want to risk 3% of your capital on a trade, your Risk Amount = Capital x 0.03
Risk Amount = Capital x Risk
- Leverage = the money you borrow from BitMEX in order to open bigger positions
- Liquidation = trade gets forcibly closed by the broker (loss)
Deciding About Entry, Stop Loss And Target
Before you actually enter a trade, you should be using a high probability trading strategy in order to find the best trade setup, meaning the exact points where you will enter the market, where you will get out in case price turns against you and where you will take profit.
Plan your trade in advance, always.
In case you don’t know any BitMEX trading strategies yet, check the linked article to learn some proven ones.
As soon as you’ve found a trade setup in the Bitcoin chart, you can now calculate your position size with those parameters.
Note: Position size is nothing you decide about randomly if you want to trade professionally and not just gamble.
The position size results from your risk amount (your capital x risk), the entry and the stop loss.
So if you have 1 BTC in your account you don’t just decide to put 500 USD in a trade. That’s something you can do, but it’s stupid and there is no plan and no professional intention to really make money behind such behavior. So the position size has to be calculated always.
Position Size For Long Trades:
(risk * budget) / (entry price – stop loss)
(0.01 * 1000) / (6500 – 6300) = 0.05 BTC
((risk * budget) / (entry price – stop loss)) * entry price
(0.01 * 1000) / (6500 – 6300) * 6500 = 325 USD
Position Size For Short Trades:
(risk * budget) / (stop loss – entry price)
(0.01 * 1000) / (6500 – 6300) = 0.05 BTC
((risk * budget) / (stop loss – entry price)) * entry price
(0.01 * 1000) / (6500 – 6300) * 6500 = 325 USD
How Or When To Add Leverage
Once you have that, you can push the buy or sell button on BitMEX, where you will be offered to add some leverage. If you do so, the leverage setting will not effect your positions size. When using leverage, two things are added to your trade setup:
1. There will be a liquidation price at which your position would get forcably closed in case price turns against you, and
2. in case it become a winning trade you earn more.
So adding leverage at the moment you open the position just adds the liquidation price which would otherwise be much further away from your entry, and it will increase your profits. Your position size stays the same.
Adding leverage is something you can do, but at the beginning you should practice without leverage in case you are a margin trading beginner.
You see that the liquidation price is something very important. You have to know at which price you would lose your entire position. But that’s not a problem at BitMEX, the system calculates the liquidation price for you, so it gets shown in your account interface.
Also BitMEX has a liquidation price calculator on the top left-hand corner of the user interface, where you can calculate this price in advance and set your stop loss order accordingly.
Important: Always set your stop loss order at a point where it would rescue your position form getting liquidated. The stop loss should kick in BEFORE the liquidation price, this can even be very short before. This makes a huge difference regarding the amount you would lose. Liquidation means your margin is gone, stop loss means only a part of your margin is gone.
Example of short trade settings in liquidation price calculator – notice the huge difference of liquidation price between isolated and cross margin setting:
Detailed Trading Prozess:
- Find a trade (by making use of a strategy)
- Decide Entry Price; Stop Loss; Take Profit Target
- Calculate Position Size (use formula)
- Enter the Trade
- Mange the Trade
- Exit the Trade
When you’ve found a trade setup you can now decide which order types fit the best in the particular case.
Market Or Limit Order
Buy or sell either as market order or as limit order. Market order means the order gets filled right away at market price. Since the market price can change in fractions of a second you might not get the exact price you were expecting. Market order makes sense if you want to make sure you get into a position right away, no matter what. At limit orders you get the exact price you wanted. You set them and wait till they get filled.
When enabling “post only” you make sure you get the market maker fee, which would otherwise not necessarily be the case.
Depending on your trading strategy you can choose between closing the trade right away in case a certain price gets hit, or you can choose a triggered stop loss order (Stop Limit) and decide the trigger price that will set the order. Generally stop market orders are always a bit more expensive because a market order always makes you the taker, so you pay the taker fees. However, especially at the beginning, it makes sense to choose stop market orders to make sure you get out of the trade right away when needed.
Take Profit Order
For taking profit again you can decide between limit and market order. You could also just use a standard limit buy or sell order to close the position.
Close On Trigger
The purpose of this order setting is to safe you from automatically getting into new positions under certain circumstances:
Imagine you’re already in a long position with 100 contracts, you could set another buy order to add 50 contract to your position, because price seems to keep moving up. Then your stop loss order would be to sell 150 contracts in case your second order gets executed. However, in case it didn’t, and your stop loss gets hit, you would then automatically be short 50 contracts. With the “Close on Trigger” setting the system only closes open positions and won’t add to them in the other market direction.
The Secret Principle Of Successful Bitcoin Margin Trading:
How to make sure you win in the long run:
It all depends on your trading strategies. You have to know a trade setup that works in 50:50 of all cases. Then you only need a to always use a risk:reward ratio better than 1:1. That’s it. The calculation is fairly easy. Imagine you day trade with those numbers, you will build wealth slowly but steady.
In other words:
Only if your expected reward is always higher than the loss you would take, you are going to be profitable if every second trade is a winner.
That’s why the risk:reward ratio is so important. Your Stop loss must always be closer than your target.
This means that you have to stick to your trading plan, to the details of your strategies. Always.
You may never change the parameters while the trade is running. If you get caught by emotions and move your stop loss or target around, you get into serious trouble. Of course you can always move your stop to break even or better, but moving the stop loss further away from your entry has proven to be generally a big mistake.
So avoid those 2 major Mistakes Margin Traders tend to make in their trades:
1. Never move your stop loss further away from your entry
2. Don’t just move your target further away, at least take partial profit
3. Enter the trade exactly at the point your trading strategy dictates.
Never enter too late. Like when your strategy says you should buy exactly at a certain resistance level but price has already moved away from it, it’s too late to enter. Then it’s more safe to wait for the next setup.
Tips On The Amount Of Leverage For Beginners:
- high leverage is gambling, liquidation price will get way too close and your margin will be completely lost
- the more leverage you use, the closer the liquidation price gets
- even if you get one good experience, you may once win a battle, but you won’t win the war since it will never work repeatedly long term
- leverage should be used for a little more flexibility with your money
Conclusion: Why Trade Bitcoin On Bitmex?
Once you’ve gained some confidence in using the platform you’ll see that BitMEX is the most comfortable platform to trade Bitcoin actively, to make money no matter in which direction price goes. This is especially comfortable on BitMEX because it calculates everything for you. The platform is just very efficient.
- very flexible leverage (up to 100x)
- low fees (except multiplied taker fees when using high leverage)
- all professional order types
- high liquidity
- easy interface
- no technical glitches
- no ID verification
- no limits for withdrawals
- supper fast sign-up, start trading right away (after BTC transfer)
- US traders are banned
- Complicated platform / system