What are Bitmex Perpetual Swaps: Advanced Crypto Trading Contracts?
Discover Bitmex Unending Swap
For many crypto traders, Bitmex is the go-to place. In fact, it’s one of the fastest growing crypto trading platforms, capturing the interest of the most professional traders. There are several reasons for the popularity, but the following are the most outstanding:
- The platform has high leverage
- The presence of altcoin futures
- No KYC conditions
For those who might not know, Future contracts is a document approved by law, which enables buyers and sellers to guess the upcoming value of the basic asset, in this case Bitcoin. Many new traders who believe strongly in a future price often utilize a lot of leverage. On Bitmex, Bitcoin (BTC) dominates the profits and losses that traders may incur.
Initially, the futures price must match in value the basic spot price. If it fails to match the underlying spot price, then it doesn’t qualify for futures contracts.
Many traders hate to hear that their trading spots “expired.” They fail to understand why their trading positions diminished. For that reason, Bitmex filled this gap by creating a contract that does not expire. With a “synthetic margin trading instrument,” traders are now able to trade effectively because many crypto traders are familiar with margin trading. However, the derivative space leaves them more confused.
To find a lasting solution to this issue, Bitmex developed a perpetual swap that never expires. They did this by creating a never-ending chain of eight-hour future contracts. The interest rate charged depends on the premium discount, which they monitor between the actual price of a swap contract and the primary price of Bitcoin.
After every minute, there is an 8-hour T-swap that verifies the premium or discount of the swap. They are planning to charge that as a funding in the future. The funding payment equals the position of a trader in BTC multiplied by the funding rate. Bitmex charges this funding after every eight hours.
What Exactly Is A Perpetual Swap?
Traders who don’t know what a perpetual swap is might be using it without knowing. According to dictionary definition, the word perpetual means, “continuing forever in the same way.”
In a situation of a negative funding rate, it implies that shorts will pay longs. For instance, in a previous eight-hour trading period, the swap traded at a discount to the basic spot price. In that case, short traders need to fund their position. Those who go against the trend get rewarded.
On the other hand, in a positive funding rate, longs have to pay shorts. For the last couple of years, Bitcoin has been on a bull market. Therefore, shorts can earn bitcoin leaving their position open.
The Funding Paid Or Received Is Obtained Using The Following Formula:
Funding = Position Value x Funding Rate
However, this could also be dangerous if, for example, the funding rate becomes high and the trader is trading using high leverage. With high leverage, it means that a trader has a bigger value position. For instance, if the funding rate is at 1.5%, a trader uses fifty or a hundred times leverage, and the market becomes static, a trader could get liquidated simply because of having to pay the interest rate.
It therefore means a trader could not afford to keep his or her position open. This could urge traders to close their trades before they have to pay the funding rate. The situation also leads to interesting episodes. With an expensive funding, traders have to close their positions before. In that case, a trader gets those star wars lights, candles, or both.
Another interesting situation is a trader who wants to close his or her position to avoid paying funding, but the market can bring in a “premium” more than what he or she has to pay funding. In that situation, a trader is bound to lose bigger than the expected funding fee. If a trader would like to open a trade again, he or she must pay a fee, the spread, and almost certainly a premium.
The market often overcorrects, as traders strive to close their positions before they incur that funding while the other side of traders strives to reduce their bids or increase their offers. If you would like to discover how you could utilize the perpetual swap, you can join Bitmex here: https://www.bitmex.com/register/vhT2qm