How to trade perpetual contract on BitMEX

Perpetual contracts on BitMEX facilitate indefinite trading of cryptocurrency-tracked assets without expiration, utilizing a funding rate mechanism to maintain price alignment and offering leveraged trading options to amplify potential profits and losses, but also requiring careful risk management to avoid overleveraging and substantial losses.

Nov 12, 2024 at 04:20 pm

Step 1: Understanding Perpetual Contracts on BitMEX

• Perpetual contracts are a unique derivative instrument offered by BitMEX, designed to track the price of an underlying asset, typically a cryptocurrency, without an expiry date.
• Unlike traditional futures contracts, perpetual contracts allow for indefinite trading without the need to roll over positions to avoid expiration.
• They offer the flexibility of short-selling the underlying asset, providing opportunities for both profit and loss potential.

Step 2: Funding Rate Mechanism in Perpetual Contracts

• To prevent a significant divergence between the perpetual contract price and the spot market price of the underlying asset, BitMEX employs a funding rate mechanism.
• The funding rate is charged or paid to traders depending on the imbalance in the market.
• When there is more long interest (buy orders) than short interest (sell orders), a positive funding rate is applied, effectively incentivizing traders to take short positions. Conversely, a negative funding rate encourages long positions when there is more short interest.
• The funding rate is calculated and adjusted every eight hours and charged or paid to the traders' accounts accordingly.

Step 3: Margin and Leverage in Perpetual Contracts

• Margin in the context of perpetual contracts refers to the collateral required to open and maintain a position.
• BitMEX offers leveraged trading, allowing traders to amplify their potential profits and losses. The amount of leverage available varies depending on the underlying asset and market conditions.
• By utilizing leverage, traders can trade with a smaller initial investment but should be aware of the increased risk involved. It is crucial to manage risk effectively and avoid overleveraging, as it can lead to significant losses.

Step 4: Placing Buy and Sell Orders on BitMEX

• To enter into a perpetual contract on BitMEX, traders place either buy orders to buy the underlying asset (go long) or sell orders to sell the asset (go short).
• The trading interface allows traders to specify the desired contract size and price.
• Once an order is placed, it will remain active until it is executed, canceled, or expires.
• Traders can monitor their active orders in the "Orders" section of the BitMEX trading platform.

Step 5: Managing Positions and Closing Orders

• After entering into a perpetual contract position, traders have the option to manage their risk and adjust their position size based on market movements.
• Positions can be closed by submitting an opposite order to the initial trade.
• For example, a long position can be closed by placing a sell order, while a short position can be closed by placing a buy order.
• Closing an order will result in the realization of profit or loss on the trade. It is important to assess market conditions and exit strategies to optimize trading outcomes.