BitMEX is a popular cryptocurrency trading platform that offers traders the ability to trade with leverage. While leverage can amplify potential profits, it also increases the risk of losses. To mitigate this risk, BitMEX has an auto deleveraging system in place that automatically reduces a trader’s position size if their margin balance falls below the required maintenance margin.
Understanding leverage and deleveraging is crucial for traders on BitMEX. Leverage allows traders to control a larger position size with a smaller amount of capital, but it also increases the risk of liquidation. Liquidation occurs when a trader’s position is forcibly closed due to insufficient margin. If a trader’s position is liquidated, they will lose their entire margin and any profits they may have had. Auto deleveraging is BitMEX’s way of reducing the risk of liquidation for traders.
Traders who are new to BitMEX may be confused about how the auto deleveraging system works. This article will provide a comprehensive guide to BitMEX’s auto deleveraging system, including how it works, how to avoid it, and what to do if it happens to you. By the end of this article, traders will have a better understanding of how to trade on BitMEX with leverage while minimizing the risk of liquidation and auto deleveraging.
Key Takeaways
- BitMEX’s auto deleveraging system reduces a trader’s position size if their margin balance falls below the required maintenance margin.
- Understanding leverage and deleveraging is crucial for traders on BitMEX to avoid liquidation.
- Traders can avoid auto deleveraging by monitoring their margin balance and using stop losses.
Understanding Leverage and Deleveraging
Leverage is a tool used in trading that allows traders to increase their exposure to the market without having to put up the full amount of capital required for the trade. BitMEX offers up to 100x leverage on some of its products, which means that traders can open positions that are much larger than their actual account balance.
However, using leverage also increases the trader’s exposure to loss. If the position moves in the opposite direction of what the trader had anticipated, the loss will be amplified. This is where deleveraging comes in.
Deleveraging is the process of reducing the leverage on a position. This can happen in two ways on BitMEX: by the trader manually reducing the leverage on their position or by the Auto-Deleveraging (ADL) system taking over.
The ADL system is designed to prevent the liquidation of positions that cannot be covered by the Insurance Fund. When the market moves against a position and the trader’s margin balance falls below the maintenance margin, the ADL system will begin to close out positions in order of profitability and leverage.
It is important to note that the ADL system is not perfect and can result in a trader’s position being closed out at a price that is not favorable to them. This is because the ADL system prioritizes profitability and leverage over price.
To avoid being subject to the ADL system, traders should always monitor their positions and ensure that they have enough margin to cover potential losses. They should also be aware of the bankruptcy price, which is the price at which their position will be liquidated if the market moves against them.
Overall, leverage and deleveraging are important tools in trading, but they should be used with caution. Traders should always be aware of the risks involved and should take steps to mitigate those risks.
| Term | Definition |
|---|---|
| Leverage | A tool used in trading that allows traders to increase their exposure to the market without having to put up the full amount of capital required for the trade. |
| Deleveraging | The process of reducing the leverage on a position. |
| Position | The amount of a particular asset that a trader holds in their account. |
| Liquidation | The process of closing out a position when the trader’s margin balance falls below the maintenance margin. |
| Bankruptcy price | The price at which a trader’s position will be liquidated if the market moves against them. |
BitMEX Auto Deleveraging System
BitMEX’s Auto-Deleveraging (ADL) system is designed to prevent the platform from becoming insolvent in the event of market volatility or sudden price movements. The ADL system automatically deleverages a trader’s position to ensure that the liquidation process is fair and orderly.
When a trader’s position is liquidated, it is closed at the market price. If there is not enough liquidity in the market to fill the order, BitMEX’s ADL system will automatically deleverage the position of the trader with the highest leverage until there is enough liquidity to fill the order. This process is known as auto-deleveraging.
The ADL system is a replacement for BitMEX’s previous Dynamic Profit Equalisation (DPE) system. The DPE system was designed to ensure that traders with winning positions did not have to subsidize traders with losing positions. However, the DPE system was found to be too complex and difficult to understand for many traders.
With the ADL system, traders are protected from the risk of being liquidated at an unfair price. The ADL system ensures that all traders are treated fairly and that the market remains stable even in times of extreme volatility.
Traders should be aware that the ADL system can result in the liquidation of their positions if there is not enough liquidity in the market. Traders should always maintain sufficient margin to avoid being liquidated.
The following table shows the differences between the ADL and DPE systems:
| ADL System | DPE System |
|---|---|
| Automatically deleverages positions | Dynamic Profit Equalisation |
| Ensures fair liquidation process | Subsidizes losing traders |
| Prevents platform insolvency | Complex and difficult to understand |
| Protects traders from unfair liquidations | — |
In summary, BitMEX’s ADL system is a fair and effective way to prevent the platform from becoming insolvent in times of market volatility. Traders should be aware of the risks associated with the ADL system and maintain sufficient margin to avoid being liquidated.
Trading on BitMEX
BitMEX is a cryptocurrency trading platform that allows traders to leverage their positions up to 100x. Trading on BitMEX can be highly profitable, but it is also very risky. Traders can enter both long and short positions on BitMEX, allowing them to profit from both bullish and bearish market movements.
When trading on BitMEX, traders can choose from a variety of contracts, each with its own size and margin requirements. The most popular contract on BitMEX is the XBT/USD perpetual swap, which is settled in Bitcoin (BTC) and has a fixed funding rate every 8 hours. Other popular contracts include ETH/USD, XRP/USD, and ADA/USD.
To open a position on BitMEX, traders must deposit margin in Bitcoin. The amount of margin required depends on the size of the position and the leverage used. For example, if a trader wants to open a $10,000 position with 10x leverage, they would need to deposit $1,000 in Bitcoin as margin.
Traders can monitor their positions and P&L (profit and loss) on the BitMEX trading platform. The platform also has a liquidation engine that automatically closes out positions if the trader’s margin balance falls below a certain level. This is known as auto deleveraging (ADL) and can result in significant losses for the trader.
It is important for traders to manage their risk when trading on BitMEX. This includes setting stop losses to limit potential losses and avoiding over-leveraging their positions. Traders should also be aware of the risks associated with trading cryptocurrency derivatives and the potential for high volatility in the markets.
Overall, BitMEX is a popular trading platform for experienced traders looking to leverage their positions and potentially profit from cryptocurrency price movements. However, it is important to approach trading on BitMEX with caution and to carefully manage risk to avoid significant losses.
| Contract | Size | Margin Requirement |
|---|---|---|
| XBT/USD Perpetual Swap | 1 USD | 1% |
| ETH/USD Perpetual Swap | 1 USD | 1% |
| XRP/USD Perpetual Swap | 1 USD | 1% |
| ADA/USD Perpetual Swap | 1 USD | 1% |
How Auto Deleveraging Works
Auto Deleveraging (ADL) is a risk management mechanism used by BitMEX and other cryptocurrency derivatives exchanges. It is designed to prevent liquidation events in highly volatile markets. When traders open positions using leverage, they must post margin as collateral for their positions. If the market moves against them and their margin falls below a certain level, their position may be liquidated.
In the event of a deleveraging event, the Auto-Deleveraging (ADL) system automatically reduces the positions of profitable traders who hold opposite positions to liquidated traders. The order of reducing positions is determined based on leverage and profit ratio. The system will start by reducing the positions of the riskiest traders first. This helps to ensure that the most risky traders are the first to be liquidated, which helps to protect the insurance fund.
The ADL system works by closing positions in a specific order. BitMEX maintains a queue of positions to be closed in case of a liquidation event. The queue is sorted by leverage and profit ratio. When a liquidation event occurs, the system will start by closing the position of the riskiest trader first. If the position cannot be closed in the market, the system will move on to the next position in the queue.
The ADL system is designed to help prevent bankruptcy and protect the insurance fund. When a trader’s position is liquidated, the system will automatically reduce the position of the trader who holds the opposite position. This helps to ensure that the most profitable traders are the last to be liquidated, which helps to protect the insurance fund.
The insurance fund is used to pay for any losses incurred by traders in the event of a liquidation. During a liquidation event, the fund acts as the last line of defense by attempting to prevent auto deleveraging. If the fund is depleted, the ADL system will start to liquidate profitable traders’ positions to prevent bankruptcy.
Overall, the ADL system is an important risk management mechanism that helps to protect traders and the exchange from losses. It is important to understand how the system works and to manage risk appropriately when trading on BitMEX or any other cryptocurrency derivatives exchange.
| Entity | Definition |
|---|---|
| Auto-Deleveraging (ADL) | A risk management mechanism used by BitMEX and other cryptocurrency derivatives exchanges |
| Position | A trader’s open position in a particular contract |
| Liquidation | The process of closing a trader’s position when their margin falls below a certain level |
| Liquidated | A trader’s position that has been closed due to a liquidation event |
| Market | The overall price movement of a particular cryptocurrency |
| Profit | The amount of money a trader makes on a particular trade |
| Margin | Collateral posted by a trader to open a leveraged position |
| Contract | A particular cryptocurrency derivative |
| Size | The size of a trader’s position |
| Queue | A list of positions to be closed in case of a liquidation event |
| Trading platform | A platform where traders can buy and sell cryptocurrency derivatives |
| Liquidation engine | The system responsible for closing positions in case of a liquidation event |
| Risky trader | A trader with a high leverage and profit ratio |
| Insurance fund | A fund used to pay for any losses incurred by traders in the event of a liquidation |
| Account | A trader’s account on BitMEX or any other cryptocurrency derivatives exchange |
| Contracts | Cryptocurrency derivatives traded on BitMEX or any other cryptocurrency derivatives exchange |
| Auto-Deleveraging (ADL) system | The system responsible for automatically reducing the positions of profitable traders in case of a liquidation event |
| Deleveraging event | An event where the ADL system reduces the positions of profitable traders in case of a liquidation event |
| Liquidation orders | Orders to close a trader’s position in case of a liquidation event |
| Scenario | A hypothetical situation where the ADL system may be activated |
| Losses | The amount of money a trader loses on a particular trade |
Understanding BitMEX Liquidations
BitMEX’s liquidation system is an essential part of its trading platform. It ensures that traders maintain sufficient margin to cover their positions and prevents the market from being disrupted by traders with insufficient funds.
A liquidation event occurs when a trader’s position moves against them, causing their margin balance to fall below the maintenance margin. At this point, BitMEX’s liquidation engine will take over the position, and a liquidation order will be placed on the market to close the trader’s position.
The liquidation price is the price at which a trader’s position will be liquidated. It is calculated based on the bankruptcy price, which is the price at which a position has zero equity left. Once the liquidation price is reached, the liquidation engine will close the position at the best available price on the market.
It is important to note that liquidations can result in gains or losses for traders. If a trader’s position is liquidated at a price higher than their entry price, they will make a profit. Conversely, if their position is liquidated at a price lower than their entry price, they will make a loss.
BitMEX’s auto-deleveraging (ADL) system was introduced to prevent the insurance fund from being depleted during times of extreme volatility. In the event of a deleveraging event, the ADL system will liquidate the riskiest traders’ positions first, starting with the largest positions.
Traders can monitor their positions and potential liquidation prices using BitMEX’s trading interface. It is essential to maintain adequate margin levels to avoid liquidation and the potential for losses.
In summary, BitMEX’s liquidation system is a crucial aspect of its trading platform. Traders must understand the risks involved and maintain adequate margin levels to avoid liquidation and potential losses.
| Term | Definition |
|---|---|
| Liquidation | The process of closing a trader’s position when their margin balance falls below the maintenance margin |
| Liquidation price | The price at which a trader’s position will be liquidated |
| Bankruptcy price | The price at which a position has zero equity left |
| Auto-deleveraging (ADL) system | A system that liquidates the riskiest traders’ positions first in the event of a deleveraging event |
| Insurance fund | A fund used to cover losses in the event of liquidation |
| Maintenance margin | The minimum margin required to maintain a position |
| Margin balance | The amount of funds a trader has available to cover their positions |
| Trading interface | The platform used to monitor and manage trades |
Upgrading Your Browser for BitMEX
One of the most important things to consider when using BitMEX is ensuring that your browser is up to date. Old browsers may not be compatible with the platform, and this can lead to issues such as slow loading times, errors, and security vulnerabilities. Therefore, it is recommended that users upgrade their browsers to the latest version.
There are several popular browsers that are compatible with BitMEX, including Opera, Firefox, and Chrome. Each of these browsers has its own advantages and disadvantages, so users should choose the one that best suits their needs. For example, Opera is known for its speed and security, while Firefox is highly customizable and has a large library of add-ons and extensions. Chrome, on the other hand, is widely used and has good compatibility with most websites.
To upgrade your browser, simply go to the official website of the browser you want to use and download the latest version. Most browsers will automatically update themselves, but it is always a good idea to check for updates manually to ensure that you have the latest version.
It is also important to note that some older operating systems may not be compatible with the latest versions of popular browsers. In this case, users may need to upgrade their operating system as well. This can be a more complicated process, so users should consult their operating system’s documentation or contact a professional if they are unsure how to proceed.
Overall, upgrading your browser is a simple but important step to ensure that you can use BitMEX to its full potential. By using a modern and compatible browser, users can enjoy faster loading times, fewer errors, and better security.
| Browser | Advantages | Disadvantages |
|---|---|---|
| Opera | Speed and security | Less popular |
| Firefox | Customizable, large library of add-ons and extensions | Can be resource-heavy |
| Chrome | Widely used, good compatibility | May use more system resources |
Frequently Asked Questions
How does auto deleveraging work?
Auto Deleveraging (ADL) is a system used by BitMEX to prevent liquidation of positions due to insufficient margin. When a trader’s position is liquidated, it is automatically deleveraged to the extent necessary to cover the loss. The ADL system ensures that the liquidation process is fair and orderly by prioritizing the liquidation of positions with the highest leverage first.
What is ADL trading?
ADL trading is a trading strategy that involves using the BitMEX ADL system to manage risk. Traders who use ADL trading can limit their losses by setting stop-loss orders that trigger auto deleveraging when their positions are at risk of liquidation.
What is the meaning of auto deleverage?
Auto deleverage is the process of reducing the leverage on a trader’s position in order to prevent liquidation. When a trader’s position is liquidated, it is automatically deleveraged to the extent necessary to cover the loss.
What is the BitMEX insurance fund used for?
The BitMEX insurance fund is used to prevent socialized losses. When a trader’s position is liquidated and the proceeds are not sufficient to cover the loss, the insurance fund is used to make up the difference. The insurance fund is also used to cover losses due to technical issues or market manipulation.
What are the BitMEX fees?
BitMEX charges a taker fee and a maker rebate for each trade. The taker fee is 0.075% and the maker rebate is -0.025%. The fees are calculated based on the total value of the trade.
What is the minimum withdrawal from BitMEX?
The minimum withdrawal from BitMEX is 0.001 BTC. Withdrawals are processed once per day at 13:00 UTC.