Chances are, that you are a new or more experienced trader, that you have a victim of over-indebted transactions. Subsequently, you have been liquidated because of the enormous need for 50X-100X for your money. Like a moth or a flame, the impulse is too powerful to force someone to resist.
There's no worse feeling in the world than having all your Bitmex liquidated funds (AKA REKT), but I'm here to tell you that you can stop here today by following a few simple guidelines.
But first, let's take a more in-depth look at what a leveraged trade really looks like from the inside out to all of you less experienced margin traders out there.
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A small background on leveraging trading
When traders speak of the use of leverage, they simply imply the possibility of multiplying their initial investment (AKA – initial margin requirement) in order to produce a larger profit with less capital. So, if you have $ 600 in your Bitmex account and would like to trade with $ 6000, you will use a 10X leverage amount. This concept is quite easy to understand for the most part.
If you make 2% of your trade, you are taking advantage of $ 6000, so you earn your profit. It's just an easy way for people to profit (or lose) in a shorter amount of time.
This is what initially led me to marginalize Bitmex trading, as well as many others like me. The potential for rapid profit is a powerful force that resides deep within the human psyche. However, if you can not control your risks and emotions, it is an unrealizable dream that will quickly turn against you.
Now let's go deeper into something called "Maintenance Margin".
What is the maintenance margin
Futures risk management systems such as Bitmex require that the initial margin (the Bitcoin contracts held in your account) requires a minimum amount of capital to keep your position active.
Unlike traditional stock markets, where a broker liquidates you at the market price once the maintenance margin has been reached, the Bitcoin derivatives trade are slightly different. Swindlers like Bitmex want to make sure that they are able to pay the person's profits from the other side of the trade (so why this is called a swap contract) to ensure they are not left to hold the bag in case your position moves quickly against you.
When you trade in Bitmex futures, you are actually trading what is called a limited risk futures contract. This basically means that you can view the value of the initial margin as the trade proceeds.
The salary profile of the company is a huge reason why Bitmex is the "go-ahead" choice for merchants looking to increase profits exponentially, with a limited downside. However, the pay profile looks almost exactly like any other financial option, as you can see from the illustration below.
So, why does Bitmex allow you such an accommodating position? There must be something for them, right? Of course there is! There are no charities, that's for sure.
Their "margin of advantage" is determined by the maintenance margin requirement (MMR), which is part of their proprietary settlement engine that you may have heard so much about.
This automated system is a way to close the positions that have moved against the trader and have begun to devour their initial margin. The settlement engine takes into account the relationship between the MMR and the initial margin that will vary based on the amount of leverage the trader is taking.
Let's go explore a little bit further …
Bankruptcy price and settlement price
Bitmex uses 2 factors that determine its liquidation engine. The price of bankruptcy and liquidation.
The bankruptcy price is when the initial margin has been completely eliminated so that the loss for the position is 100%. The settlement price is when you have exhausted your MMR and the price at which the position will be closed. This is mainly used to protect Bitmex from potentially fast moves in Bitcoin price action.
You are probably already aware of the fact that the settlement price is provided to you inside the popup of the order form displayed right before you do an & # 39; operation. You can also find it inside the calculator at your fingertips, so you can correctly calculate the risk before placing the order.
So what about the price of bankruptcy? Dov & # 39; is it?
It's hidden and for good reason (well at least for Bitmex). By hiding the price of bankruptcy, you'll never really know how much space your trade must move before your initial margin is completely used up. Bitmex is now able to keep you obscure about how much of your initial margin will be consumed before your trade is liquidated.
note that: the price of bankruptcy is only hidden by the Bitmex calculator. Once the order has been executed, the settlement price is given to you. This price is static (unless you add or remove it from your order), so you do not need to worry about surprise liquidations.
Let's look a little deeper and look more closely at this statistical limit and how to calculate it before placing an order.
The statistical border Bitmex
Once your position is close to liquidation, you will be denied the extra "participation in price" (by placing another order), giving you the opportunity to recover the market. In this scenario, Bitmex has the statistical advantage over the long haul.
To give a little more context, let's have a look at some calculations below regarding bankruptcy and liquidation prices and the result on margin rates.
By the way, you can come up with these rates yourself using this handy tool on AntiLiquidation.com
The picture shows the amount of "theoretical MMR" that will occur when trading on Bitmex and how large it is compared to the initial margin. When you view these 2 columns, you may have an idea of how much initial margin and MMR are applied to each trade.
Take a look at the column called "Maintenance margin" and how much it increases as leverage increases (this should be expected). However, what is surprising here is the amount of MMR that composes it. The percentage of the initial margin increases exponentially when negotiating with a higher lever.
For example, if you were to trade at 100X, you only have to move $ 35 from the current price before you are completely liquidated. When you trade with an initial deposit of $ 70, you will be quickly liquidated when you move only halfway to that position at $ 35 MMR.
On the other hand, when you look at a trade with 10X leverage you will see that this calculation is much less pronounced. For example, if you have an initial margin of $ 640, you will not be liquidated until you have reached $ 610 from your initial margin. This is more than 10 times less than what is required by the initial margin when using the 100X lever. This really is the difference.
In short (as if it were not openly obvious), the odds were strongly against you when using the 50X to 100X lever. As you can see, it is not the most effective way to trade and it is not the most probable way to win.
Your take away from all this should be to never exchange anything over 25X, unless, of course, you do not like the bet, because that's exactly what you're doing with a leverage higher than that.
When you trade something over 10X, you should always be sure to use a well-placed stop loss, which covers the next segment of this guide.
Why you should use an adequate Stop Loss
No matter how you cut it, Bitmex trading is a risky endeavor. What makes it exponentially riskier is not being able to use a stop loss or getting out of a loss of business through a mental stop loss (for some of you more experienced traders).
As I'm sure you know by now, trading in the cryptography market happens with extremely volatile fluctuations. You can exchange between 1 and 6% of oscillations one day and 10-20% of oscillations on another. This makes it almost impossible to evaluate a consistent range during swing trading. These massive fluctuations are not only reserved for low-cost tokens, but are also found in the first 10 cryptocurrencies.
Personally, I fell victim to trading without stop loss more than I would like to admit, but with all the losses I've had over the years, I simply do not exchange anymore without them (for another detailed stop loss guide, click here )
I do not care how impressive your series of wins / losses, it only takes a bad exchange to lose everything.
That said, let's analyze the stop loss strategy that you should use on all your Bitmex operations.
Prevent settlement with the Market Stop Loss
Preventing settlements is not only a great business practice, but it can save you from losing your ass if used wisely. Chances are you've already been there (so why are you reading this article) and you have the T-shirt to prove it.
What most people do not realize is that Bitmex will hit you with a liquidation penalty instead of going out with a marginal call (like a stop loss). Let's move on to a scenario with 100X leverage, which obviously is not advisable, but for demonstration reasons, let's take a look.
In order to actively satisfy the trade requirements, 1.1 BTCs are needed, which is just over 1%. You will also need to cover an exit tax on the position for potential funding. Your settlement price for this long trade is $ 1044.78, which is slightly higher than $ 5 dollars under your subscription.
Once this price has been reached … welcome to "liquidation street", home of the bitter and REKT.
However, you do not have to be another victim. If you simply set a stop loss just before the settlement price and sell it out of your position at $ 1045, the loss would only be -0.456 BTC.
So, using your stop loss, you still have 0.65 BTC left to trade with. It's better than staying with a big fat 0 after being liquidated, right?
Take advantage of the exchanges in a responsible manner, taking into account the maintenance margin so that you can manage your risks before carrying out an operation. However this does not necessarily mean settling the odds in your favor. Repeatedly, your trade will be liquidated if you decide to use a lever above 50X.
- Use the Anti-Clearing tool to figure out exactly where you should be in your business and the exact amount you are risking.
- Always, always, always use a stop loss. Whether it's a stop or a mental stop loss, you need to make sure it's okay and stick to it! Trends can change "backwards" and you do not want to be captured by the other side of that emerging trend that greets your profits goodbye.
- Use the stop loss of the market as it guarantees you to exit the trade when you need it most. Dips and spikes can happen quickly. If you insist on trying to save yourself that levy fee, use the stop loss limit, and at least be close to your computer in case your order is not filled.
- If you're feeling lucky, and you've still rationalized your way in high-lever trading, use 25X or less with a tight stop loss. This, at the very least, will put the odds (a bit) in your favor. Trading above 25X puts the odds back in favor of Bitmex.
As always, if you have further questions, leave a comment below.
Good luck and good trading!