How to calculate BitMEX leverage fee

To determine the cost of borrowed capital for leveraged trading on BitMEX, the leverage fee must be calculated based on the leverage ratio, funding rate, position size, and holding time.

Nov 14, 2024 at 04:46 pm

How to Calculate BitMEX Leverage Fee

Leverage, in the context of financial trading, refers to the use of borrowed capital to increase the potential return on an investment. Leverage can be a powerful tool for amplifying profits, but it also comes with increased risk. One of the key considerations when using leverage is the cost of borrowing, which is typically expressed as a leverage fee.

BitMEX, a popular cryptocurrency derivatives exchange, offers a range of leverage options for its users. The leverage fee on BitMEX is calculated based on the following factors:

• Leverage ratio: The ratio of borrowed capital to the trader's own capital.
• Funding rate: A variable rate that is adjusted every 8 hours based on supply and demand for leverage.
• Position size: The total value of the trader's open positions.

Steps to Calculate BitMEX Leverage Fee:

1. Determine the Leverage Ratio:

   The leverage ratio is the ratio of borrowed capital to the trader's own capital. For example, if a trader has $1,000 in their account and opens a position with $10,000 in borrowed capital, the leverage ratio would be 10x.

2. Check the Funding Rate:

   The funding rate is a variable rate that is adjusted every 8 hours based on supply and demand for leverage. A positive funding rate indicates that there is more demand for leverage than supply, while a negative funding rate indicates the opposite. The funding rate can be found on the BitMEX website or by using the API.

3. Calculate the Leverage Fee:

   The leverage fee is calculated using the following formula:

   Leverage Fee = Leverage Ratio * Funding Rate * Position Size * Time

   • Leverage Ratio: The ratio of borrowed capital to the trader's own capital.
   • Funding Rate: The variable rate that is adjusted every 8 hours based on supply and demand for leverage.
   • Position Size: The total value of the trader's open positions.
   • Time: The length of time that the position is held open.

4. Pay the Leverage Fee:

   The leverage fee is paid every 8 hours. The fee is automatically deducted from the trader's account balance.

Example Calculation:

Let's say a trader has a $1,000 account balance and opens a position with $10,000 in borrowed capital. The leverage ratio for this position would be 10x. The funding rate at the time of opening the position is 0.01%. The trader holds the position for 24 hours.

To calculate the leverage fee, we use the following formula:

Leverage Fee = Leverage Ratio * Funding Rate * Position Size * Time

Leverage Fee = 10 * 0.0001 * 10000 * 24

Leverage Fee = $2.40

Therefore, the trader would pay a leverage fee of $2.40 every 8 hours for holding the position.