Bitmex is a platform where traders get the opportunity to leverage trade against a number of coins such as Bitcoin, Ethereum, Ethereum Classic, Dash etc. Bitmex allows upto 100x leverage on a single trade which allows users to earn huge profits while exposing them to higher risks.
What is Leverage?
Leverage is a form of borrowing funds in order to increase potential returns on an investment. When you leverage trade, a part of your holdings is kept as a collateral for the amount of borrowed funds. If you are in profit and successfully close your position, your collateral is returned to you with profits that you earnt from the trade with the deduction of a small fee. If your investment starts going sideways and you are in loss, after a set liquidation price, the trade automatically gets reversed and your collateral gets liquidated.
How to leverage trade on Bitmex?
Leverage trading on bitmex is easy. First you have to register on Bitmex and deposit some amount of coin. After the coins are confirmed, you can start trading with upto 100x leverage. Bitmex allows upto 100x leverage so if you have 0.01 btc in your account, you can trade 1 bitcoin in a single trade.
Bitmex makes use of several different types of contracts. Each type of contract has various limit on the leverage and different fee. We will be taking example of perpetual swap on Bitcoin in this article.
A single contract in a perpetual swap for bitcoin is worth $1. So if you have 0.01 btc in your account which equals 40USD in price at market price of 4000USD, you can buy 4000 contracts at 100x leverage. If you set the leverage to 50x, you can buy 2000 contracts.
If you think that the price is going to rise, you have to buy/long. If you think that the price is going to drop, you have to sell/short. Once you have opened a long or short position and your order is filled, you can see your positions in the open positions section. You can set a target price and click on close to set a limit buy/sell order to close your position on a certain price. You can also see the liquidation price along with the Profit and Loss percentage in the same row.
How is Profit calculated?
Profit and loss ratio calculation is kind of complex on Bitmex. The formula for Profit or loss is
Number of contracts * contract value * (1/Entry price – 1/Exit Price)
So if you buy 4000 contracts at 4000$ and the price rises by 100$, you make
4000 * 1 * (1/4000 – 1/4100) = 0.024 BTC
Keep in mind, leverage doesnt affect the profit percentage. It only affects the liquidation price and fees. If you are trading at 100x leverage, the liquidation price will be near and the trade is highly risky. Thats why you should always start with low leverages like 2x,3x,5x. Try never to trade above 20x leverage if you dont want to lose your precious coins which are kept as collateral by the platform.
Bitmex is a great place for traders that dont want to keep high amount of coins on the exchange but want to trade in high volumes. While Bitmex seems like a heaven to make huge profits, it is a hell for newbie traders that use high leverages and fail to keep track of the market.
Let us know how you use bitmex and how much have you made or lost while trading using leverage.