Yesterday, BitMEX introduced its 25x leverage perpetual swap for ETHBTC pair called ETHXBT. CEO Arthur Hayes wrote a "Swaps 101" that tries to explain how it works. It's all about financing rates, which for ETH and BTC come from the swaps market on spot & margin altcoin exchange Poloniex.
Here's a helpful infographic we put together:
Here's a helpful infographic we put together:
The basics of the product are that there is no expiration, so you can keep your position open forever, as if it were just a spot or margin position. Every day, instead of normal settlement or any expiration, the part of your realised profit will be available for withdrawal and an interest payment based on the net Poloniex ETH and BTC lending rates is sent from traders who are long ETHXBT to traders who are short on ETHXBT. Currently, all withheld profit on the new product is rebalanced every week on Friday 12 UTC still, which is not clear in their documentation.
A trader who is long ETHXBT contract on BitMEX will receive the ETH lending rate as an interest payment, and pay the BTC lending rate. On the flip side, traders on the short side of ETHXBT will receive the BTC lending rate and pay the ETH lending rate. Because of the supply and price difference between ETH and BTC, the net of the rate used to make the payment will almost always be positive for shorters on ETHBTC and negative for those who are long.
A trader who is long ETHXBT contract on BitMEX will receive the ETH lending rate as an interest payment, and pay the BTC lending rate. On the flip side, traders on the short side of ETHXBT will receive the BTC lending rate and pay the ETH lending rate. Because of the supply and price difference between ETH and BTC, the net of the rate used to make the payment will almost always be positive for shorters on ETHBTC and negative for those who are long.
This is a change from BitMEX's normal products of futures that expire at various timelengths. Now you can earn interest while trading the products, instead of trading the premium.
It has a 25x max leverage (4% initial margin requirement), and the funding credits are paid at 12:00 UTC. The maker/taker fee is still -0.025% and 0.075%. The full withheld profit won't be available until the next Friday on weekly rebalance.
It has a 25x max leverage (4% initial margin requirement), and the funding credits are paid at 12:00 UTC. The maker/taker fee is still -0.025% and 0.075%. The full withheld profit won't be available until the next Friday on weekly rebalance.
Example of Trading BitMEX ETHXBT Perpetual Swap
To give an example of how it works, let's say you are short ETHXBT, you have two ways to profit:
1) The interest payment you get at 12:00 UTC each day (positive most of the time when you're short).
2) The decline in the price, which will track spot market value
How much interest will you earn? Look at Poloniex for the reference, below is BTC lending rate:
1) The interest payment you get at 12:00 UTC each day (positive most of the time when you're short).
2) The decline in the price, which will track spot market value
How much interest will you earn? Look at Poloniex for the reference, below is BTC lending rate:
And if you're short, you also have to pay the ETH lending rate, which will almost always be less than the BTC rate, so the net amount will be that you receive. But the payment will roughly equal what you see on Poloniex:
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If you are short, for example, 100 contracts at 0.02 ETHBTC, worth 2 BTC, then you would have gotten on Friday 0.1306-0.0217 = 0.1089% payment, or 0.002178 BTC. If you were long 100 contracts, you would have had to pay this amount to the short holders.
This is because you are borrowing at a higher rate in BTC and then investing at a lower rate at ETH if you are long ETHXBT, this makes it usually cost money to be leveraged long. Conversely, if you are borrowing ETH to go long BTC, you're paying a lower ETH rate to earn a higher BTC rate, and earning interest when leverage short ETHXBT.
It might seem daunting at first, but it's really as simple as just trading it as if it's spot or margin. You can buy and sell in the market to profit, which is realised ever Friday. Or you can just hold it and earn interest if you're short or just be willing to pay for the leverage if you're long. Remember: every day at 12:00 UTC is when the interest rate payment occurs (positive if short Ethereum, negative if long Ethereum -- most of the time).
Get 10% off fees trading this product and 100x leverage BTC contracts and more here.
This is because you are borrowing at a higher rate in BTC and then investing at a lower rate at ETH if you are long ETHXBT, this makes it usually cost money to be leveraged long. Conversely, if you are borrowing ETH to go long BTC, you're paying a lower ETH rate to earn a higher BTC rate, and earning interest when leverage short ETHXBT.
It might seem daunting at first, but it's really as simple as just trading it as if it's spot or margin. You can buy and sell in the market to profit, which is realised ever Friday. Or you can just hold it and earn interest if you're short or just be willing to pay for the leverage if you're long. Remember: every day at 12:00 UTC is when the interest rate payment occurs (positive if short Ethereum, negative if long Ethereum -- most of the time).
Get 10% off fees trading this product and 100x leverage BTC contracts and more here.
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