Margin trading is not exclusive to cryptocurrencies. BTCMEX is a blend of the best features of traditional finance and 21st Century innovations. The platform is currently providing Bitcoin Perpetual Contracts with up to 100x Leverage, a speed of 100,000 TPS, hundreds of APIs, diverse Order Types, and 24/7 localized live multilingual Customer Support.
Perpetual Contract: Explained
Perpetual Contract is a type of Futures Contract which doesn’t have an expiration date or settlement. It is an innovative cryptocurrency Futures market product. Unlike contracts on the traditional Spot Market, which are traded at a specific time at the specific price, in Futures, two parties will make a trade on the contract with a settlement on a future date and a specific price. Perpetual contract is a type of Futures Contract that doesn’t have an expiration date or settlement. BTCMEX offers Bitcoin Perpetual Contracts, which allows traders to keep their positions open for as long as they want. Perpetuals are a type of Swap Contracts.
Let’s see how the Contracts work on the Exchange. For example, you purchase a Perpetual Contract for the BTC/USD pair. If you Long (buy) and the Bitcoin price rises, you make a profit at the end of the contract, while you would suffer a loss if the price drops. On the contrary, if you Short (sell) and the BTC price falls in value, you would make a profit but would suffer a loss if the price rises.
In traditional finance and trading, Long and Short are the investment strategies that show a trader's prediction. Long means a trader is positive on the market, while Short means a trader is negative on the market. In terminology, they don't correspond directly to buy and sell.
Longning means predicting that the price of an underlying asset will go up.
Shorting is predicting that the price will go down. Shorting refers to selling an asset and rebuying it back at a lower price.
In cryptocurrency trading, Longning means buying Bitcoin or other digital currencies on an open market when you expect prices to increase over a reasonable period.
BTCMEX is a crypto derivatives exchange, that allows crypto investors to make a profit even if the BTC/USD price goes down by opening a Short position.
The cryptocurrencies market is highly volatile. Long and Short positions expand users' trading possibilities on the exchange.
What is Leverage?
In crypto Margin trading, Leverage is an important feature of the Perpetual Contract. On BTCMEX you can trade BTC/USD Perpetual Contracts with up to 100x Leverage. It allows traders to open positions and place orders that are significantly larger than their Initial Margin. Initial Margin is the amount used by a trader as a collateral to open a position on the exchange. High Leverage is one of the main profit-making instruments in cryptocurrencies Derivatives trading.
Leverage is a multiplication of the Initial Margin by x to give the total position value, with the Initial Margin used as the collateral to open the position.
The money on a trader’s account is not exactly the money used to make trades. That money serves as collateral towards a loan an exchange is giving users to trade with. This allows traders to make much larger trades than they would with just their own money.
Here is an example, a trader opens a position USD 1,000 worth of Bitcoin (BTC/USD trading pair). He does that using USD 200 of his own money as a collateral. If a trader goes Long (buys) and the price of BTC to USD rises and after closing his position his position value went up from USD 1,000 to USD 2,000. He would take back his USD 200 and make USD 1,000 profit, which was possible because of the Leverage. If he hadn’t used Margin trading, his total position would have been USD 400, with only USD 200 profit.
Please, note! Leverage multiplies any gain and loss. The Initial Margin is used as the collateral necessary to open a position, and thus used preferentially when experiencing loss. As such whenever entering a trade make sure to never put your entire available margin and only use high-leverage when absolutely certain unless ready to lose the entire Margin placed. Never trade more than you can afford to lose.
Liquidation on BTCMEX
But what happens if the trader experiences loss? When the trader loses nearly all of his Initial Margin (the collateral necessary to open a position) his position is automatically closed. This process is called Liquidation. The trader whose position is liquidated loses his entire Margin, as his position is closed at a Bankruptcy Price.
Liquidation is an automatic closing of the position due to a significant Margin loss.
Since users are trading with the exchange’s money, if the price drops (for Long positions) or goes up (for Short positions) too much, the exchange can potentially lose money. To guard against loss the platform sets a typical Margin requirement, which is calculated on the BTC price - Maintenance Margin.
Following the example above - going Long USD 1000 worth of Bitcoin with 5x Leverage (with USD 200 used as the Initial Margin, when the position reachers USD 800 would be when the Trader lost his entire Margin) - if the exchange’s minimum Margin requirement is 0,5% (USD 5 of position value), and the price drops by 19,5% (USD 195 of position value). The position value is now touching the minimum Margin requirement (USD 800+5). This trader will automatically be liquidated.
The price at which Liquidation occurs always depends on the Leverage chosen, the Initial Margin value, and the Maintenance Margin value. The Liquidation Price will always be at a price better than the Bankruptcy Price, the price at which a trader would have lost all his Initial Margin.
Fair trading: Dual-Price Mechanism
Dual-Price Mechanism is a condition when Liquidation is triggered by an average market price and not the Last Traded Price of the exchange.
BTCMEX uses a Dual-Price Mechanism - an important measure to prevent market manipulations. To protect users from volume inflations and price fluctuations, which can cause unreasonable Liquidations on the platform, the Mark Price is used to trigger the Liquidation. The Last Traded Price (internal price) can’t trigger the Liquidation on the Exchange. BTCMEX is using the Mark Price instead, which derives from the Index Price (average market price) and is calculated equally from three exchanges Kraken, Coinbase, and Bitstamp (33.33% each). This means BTCMEX can’t influence the Liquidation internally.
Both the underlying and the swap contracts are quoted in USD. Margin and PNL are denominated in Bitcoin.
The base currency is BTC.
The quote currency is USD.
The Mark Price only affects the Liquidation Price and Unrealized PNL (Profit and Loss), it does not affect Realized PNL. Unrealized PNL is shown automatically after an order is executed.
Mark Price: Calculation
The Mark Price for a Perpetual Contract is calculated using only the Funding Basis:
Funding Basis = Index Price x Funding Rate x (Time Until Funding / Funding Interval)
Mark Price = Index Price x (1 + Funding Basis)
Loss covering: Insurance Fund and ADL
To provide the best cryptocurrency trading experience BTCMEX uses an Insurance Fund - a mechanism that protects the users’ profits from an ADL (Auto-Deleveraging system) or any other type of loss covering system used by the exchange. The Insurance Fund serves to lower the risk posed by traders who have negative position value when they are liquidated in a leveraged trade. If there’s no Insurance Fund, the loss covering payment would always be necessary during negative balance Liquidations.
The Insurance Fund is a balance on the exchange, filled by the Remaining Margin of a position liquidated at a price better than the Bankruptcy Price, and used to cover the loss from a position closed at a price worse than the Bankruptcy Price and prevent an ADL.
The Liquidation Fill Price is the Last Traded Price at the moment the position is closed. The difference between the Fill Price and the Bankruptcy Price is the amount of a margin taken from or given to the Insurance Fund.
The Auto-Deleveraging system is only used when the Insurance Fund is insufficient to cover the possible contract loss after the Liquidation. ADL is a crypto exchange feature that automatically deleverages opposing traders’ positions by profit and Leverage priority. Unlike in a Socialized Loss system, which spreads the loss amount among all profitable traders on the exchange.
Auto-Deleveraging (ADL) is a loss covering system, that automatically deleverages opposing traders’ positions by profit and leverage priority. It is triggered when Insurance Fund is insufficient to cover the loss.
The traders with the highest ranking will be selected for deleveraging first. When an ADL is triggered, the system matches one or several profiting positions with the liquidated order at the Bankruptcy Price.
What is Funding?
When trading cryptocurrency Perpetual Contracts, every user needs to be aware of Funding - the periodic interest payments between traders which aim to keep the Last Traded Price as close to the Index Price as possible. If the rate is positive, then Longs will pay and Shorts will receive the rate, and in the opposite way if the rate is negative. On BTCMEX Funding occurs every 8 hours at 04:00, 12:00, and 20:00 GMT+8. The traders will only pay or receive Funding if they hold a position at one of these times. If the position is closed prior to the exchange, Funding will not be paid or received. BTCMEX does not charge any fees on Funding. It is a direct peer-to-peer Exchange.
BTCMEX Perpetual Contract Details
Perpetual Contract Trading Fees
BTCMEX charges two types of trading fees: Maker Fee and Taker Fee. Trading fees are based on the position value and don’t depend on the Leverage used. The fee is charged for every complete trade.
A Maker provides Added Liquidity by placing an order that stays in the order book. A Taker provides Removed Liquidity by placing an order that can be filled immediately.
Initial Maker Fee: -0.025%
Initial Taker Fee: 0.075%
Trade more - Pay less!
BTCMEX has the most Flexible Fee system in the market. It’s based on the trading volume which is calculated using the 30 days moving average trading volume.
Market Order VS Limit Order
Traders use orders - an instruction to buy or sell - to open or close a position on the exchange.
A variety of order types are available when trading digital assets on an exchange. Some guarantee execution, others guarantee price. Each type of order is a tool that serves to achieve a certain goal. Both Market Orders and Limit Orders are currently available on BTCMEX. The platform is designed to bring diversity in cryptocurrency trading. Explore the Order Types currently available on BTCMEX.
A Market Order is a buy or sell order that is executed immediately at the market price and filled at the best available price from the Order Book.
Market orders are used when certainty of execution is a priority over the Fill Price, and its goal is to have the order filled quickly. In the cryptocurrency Derivatives market, the price paid or received may be quite different from the last price quoted before the order was entered due to high volatility.
A Limit Order is an order used to buy or sell at a specified price or better.
The main purpose of these is to control the price of the trade, which does not guarantee instant execution. To place the Buy Limit Order, the target price must be set lower than the Last Trader Price, or it will be filled as a Market Order. The opposite applies to the Sell Limit Order, where the target price must be set higher than the Last Traded Price. The Last Traded Price is the internal price index of a cryptocurrency on the exchange. Limit Orders ensure that the order is not filled at a price less favorable than the set target price.
Conditional Orders on BTCMEX
The crypto market is fast and flexible, so should be the exchange. There are tools suitable for both beginners and professional quantitative traders available on BTCMEX. In traditional finance, Take Profit and Stop Loss orders are used as exit trading strategies to secure the profit or prevent further loss. They are successfully applied for crypto derivatives trading on the exchanges today.
Take Profit Order is an automatic order to close the position at a pre-set price with an acceptable profit. The Take Profit exit strategy is designed to cash-out immediately and protect your trading from the future price fluctuations and secure your profit.
Stop Loss Order is an automatic order to close the position at a certain pre-set price better than the Liquidation Price to prevent further loss. The main purpose of the Stop Loss feature is to avoid Liquidation, during which a trader loses his entire margin.
These settings can be selected while placing Conditional Orders on BTCMEX. A Conditional Order is a buy or sell order that is executed at a trigger price pre-set by a trader. The common use of the Conditional Orders is to take profit, limit loss or enter the market at a desired price. Conditional Orders and be applied with both Market and Limit Orders.
Conditional Market Orders are triggered by a specific pre-set price and executed immediately. A trader can choose the Last Traded Price, Mark Price or Index Price to be a trigger for the order, but it’s always executed at the Last Traded price.
Conditional Limit Orders are triggered by a pre-set price (Last Traded, Mark or Index), on which a Limit Order is placed. A Take Profit Order is filled if a trader sets a trigger price better than the price of the position. A Stop Loss Order is filled if a trigger price is worse than the price of the position.
What is Time in Force?
Time in Force, or TIF, is a special instruction used when placing an order to indicate how long it will remain active before it is executed or expires.
Positions closed with the Conditional orders can be filled fully or partially. Traders have three Time in Force options for Limit Orders: Good till Canceled (GTC), Immediate or Cancel (IOC), and Fill or Kill (FOK).
- Good till Canceled (GTC): The order is active until filled or canceled by a trader.
- Immediate or Cancel (IOC): Any portion of the order that can not be filled immediately at the order price or better is canceled.
- Fill or Kill (FOK): The entire order must be filled immediately at the order price or better, or it will be canceled.
All these features make a Bitcoin Perpetual Contract one of the most innovative types of products on the crypto derivatives market. Born in Europe and covering the whole world, BTCMEX is providing Bitcoin Perpetual Contracts with up to 100x Leverage, speed of 100,000 TPS, hundreds of APIs, and 24/7 localized multilingual Customer Support. Website can be accessed globally and available on your PC and mobile, on IOS and Android, providing a wide range of free videos, seminars, articles, charts, and education materials.
Perpetual Contract: A type of Futures Contract which doesn’t have an expiration date or settlement.
Leverage: A multiplication of the Initial Margin by x to give the total position value.
Margin: A part of the total position value that belongs to the trader.
Initial Margin: The amount of money used by a trader as a collateral to open a position on the exchange.
Maintenance Margin: A minimum amount of a trader's money he needs to keep his position open.
Liquidation: An automatic closing of the position due to a significant Margin loss.
Dual-Price Mechanism: A condition when Liquidation is triggered by an average market price and not the Last Traded Price of the exchange.
Insurance Fund: A balance on the exchange, filled by the Remaining Margin of a position liquidated at a price better than the Bankruptcy Price, and used to cover the loss from a position closed at a price worse than the Bankruptcy Price.
Auto-Deleveraging (ADL): A loss covering system, that automatically deleverages opposing traders’ positions by profit and leverage priority. It is triggered when the Insurance Fund is insufficient to cover the loss.
Funding: The periodic interest payments between traders which aim to keep the Last Traded Price as close to the Index Price as possible.
Order: An instruction to buy or sell on an exchange.
Market Order: An instruction to buy or sell “right now” at the market price.
Limit Order: An instruction to buy or sell at a specific pre-set price or better.
Conditional Order: An instruction to buy or sell that is executed at a trigger price and is used to take profit, limit loss or open a position at a desired price.
Take Profit: An automatic order to fully or partially close the position at a pre-set price with an acceptable profit.
Stop Loss: An automatic order to fully or partially close the position at a certain pre-set price better than the Liquidation Price to prevent further loss.
Time in Force: A special instruction used when placing an order to indicate how long it will remain active before it is executed or expires.
Good till Canceled (GTC): A Time in Force instruction to keep the order active until filled or canceled by a trader.
Immediate or Cancel (IOC): A Time in Force instruction to cancel any portion of the order that can not be filled immediately at the order price or better.
Fill or Kill (FOK): A Time in Force instruction to immediately fill the entire order at the order price or cancel it.