Updated: Jun 15, 2019
To explain leverage on BitMEX (margin trading) we need to use several examples to make it simple. You can choose a range from 0,01X up to 100X. Leverage ratio determines your margin to trade – high leverage means low margin and more important: liquidation price is so close! Leverage on BitMEX does not have a direct influence on your profits and fees.
Profits on BitMEX are always related to quantity. And there is no fees!!
Here is a step by step guide on how to calculate all before you open a trade.
Let’s stick to this example:
You deposited on BitMEX 2BTC, trader X thinks to buy long (scenario 1)
Current BTC price is $5 000
X wants to use all deposited BTC for this trade.
And you are looking for the best strategy and you are trying to estimate risk and potential profits. Using our free BitMEX calculator you check what will happen if you simple manipulate BitMEX leverage from 0,01X up to 100X. Let us explain you this with ABCD examples. It is not so simple. You can edit in excel blue cells.
We inserted this data into our BitMEX calculator:
Set Entry Price and Close Prices.
A example- Leverage 1:100, B- 1:33,3 C- 1:5,55 and D - 1:0,5
Quantity? Manipulate with quantity until Deposit BTC = 2BTC (about)
Page to a free download: Bitmex excel calculator to check all leverages and find quantity.
Example A – it would be almost like BitMEX suicide (leverage 100x)
A trader started checking with leverage 100X!! This the main reason he uses BitMEX! He was very excited as he noticed that with this huge monster leverage he can open 1,000,000 contracts. It means the trade value is $1,000,000. How does it work?
Read this explanation carefully:
First, he chooses leverage (2.) and then he manipulates contracts quantity (1.) to see Deposit BTC (your margin trading) exactly = 2BTC (as this is the plan)
He was more and more excited when he inserted Entry Price (3.) and Close Price (4.). If the BTC price changed $1 he earns $200 (Trade result in USD). $500 change on BTC price, means for him profit $100,000!!! What is more, if he opens and closes by the limit order he will get from Bitmex $500 rebates (Fees1).
But his enthusiasm disappeared when he the saw red cell (Estimated liquidation price). In this case it displayed $4975. It means when the Bitcoin nark price matched this price it is over. His loss would be $25 x $200 = $5000 as BTC price dropped…. And next $5000 as he didn’t close the trade before liquidation price – he would lose 10,000$ in total. What is $25 price move at Bitcoin price? Nothing!
But it is nice to dream about opening X100 leverage in the right moment. But it is almost impossible. Margin to trade finishes here so fast!
Example B – it would be quite risky to Bitmex as well (leverage 33,33)
33,33X leverage is not 100X. When he reduced leverage look what happened:
Now we can only buy/sell maximum 333,300 contracts (not 1,000,000). Lower leverage requires more margin to open trade (he must match the Deposit in BTC to displays 2BTC – again according to plan)
If the BTC price changed 1USD he earns or loses $66,66 in this case. Much less than 200$, right?
Most important is the liquidation price: It went down to $4879 and he loses his whole deposit. Now he has $121 of reserve (5000-4879). With x100 leverage it was just $25! Still, our trader is scared to lose his whole deposit when the price just changed more than 2,4%. But in this case, he can consider a smarter way to stop selling his order for example at $4910 to avoid liquidation. Extra profits from Bitmex fees dropped to $166 (Fees1) as he had to decrease contract quantity. Ministry explains BitMEX fees here.
Example C – it is high time Bitmex chills out (leverage 5,55)
In this case, he declined leverage to 5,55X (he can open max 11,1BTC value)
It allowed him to open maximum 55,500 contracts (worth $55,500).
Still your margin trading (deposit taken in BTC =2)
$1 on the chart means for him +/- “only” $11,1 and he will get only $27,75 for limit orders fees.
Liquidation price? Down to $4258. Now he has 18% reserve to Liquidation price. Looks safe now. But he cannot lose this money…. And he wants to check less than 1X leverage to open buy long.
Example D – almost Bitmex safe heaven? (leverage 0,5)
Okey, let’s find something for long-term safety.
He changed leverage down to 0,5X! Much even less than 1X.
With this leverage, he can open just 5000 contracts. A very big margin will be kept for a small trade like this. This is a little harder to explain.
$1 means now $1 extra because of leverage. What is interesting is that he earns more ($2) on deposited 2BTC at Bitmex account for this trade!
His deposit (2BTC) earns two times faster than his 0,5X leverage.
Summing up - with 0,5X He has the position with total exposition 3BTC which means He earns and loses 50% quicker using this small leverage. Liquidation price is this example is about $1675. (for short you have to use scenario 3 and 4) – read exactly instruction how to use this excel calculator.
Remember to check the correct scenario (1,2,3 or 4)! Here we only compare scenario 1 and we pasted one next to another.
Conclusion: Which leverage should I use at Bitmex? Explained. Q&A
It 100% depends on your strategy. Generally, Bitmex leverage more then 10X is simply considered risky, as when the price goes about 10% in the wrong direction your trade can be liquidated, and you will stay with nothing. It is true but sometimes when you want to just jump for several seconds during high volatility to scalp… 50X or 100X can be considered (with a rather small quantity of XBT contracts).
BITMEX LEVERAGE SIMPLE EXPLANATION: Questions and Answers
How much does Bitmex charge me if I use 100X or 20X leverage?
It is hard to believe but margin trading at BitMEX is free of charge! There is a funding rate every 8 hours but it is P2P payment. So, you pay another trader, or he pays you depending on if you are short or long. BitMEX does not earn anything. Forex traders can be confused as they are charged by Forex brokers every day (swap points). The main difference is that Bitmex is not a broker! This is a p2p exchange and they are doing revenue just on commissions.
Can I use my custom leverage level like 6,66X?
Try to edit it here:
Can I reduce my leverage when my trade is already on the market?
Yes, you can If you have enough available free margin to add into a kept deposit. To reduce leverage and stay with the same contracts quantity you must add margin manually clicking at specific trade at the Bitmex platform or just drag leverage from 50X to, for instance, 25X using leverage bar on the left side.
Can I increase my leverage when my trade is already on the market?
To increase your leverage for instance from 1:10 t0 1:15 Bitmex?
Yes, you can, but first Bitmex will check if this change will not liquidate you.
In most cases, you can increase leverage when you are earning on this trade or losing not too much. Keep in mind: higher leverage will not increase your quantity of contracts but give you free margin to use for open new trades. Higher leverage will change the liquidation price against your favor.