Bitmex negative balance protection (NBP) & insurance fund. Cross margin vs seperated margin
Updated: Aug 27, 2021
Bitmex negative balance protection (NBP) is fully supported in two ways - margin cross and separated margin. All losses bigger than your deposit are cover by Bitmex insurance fund. You never can lose more that you invested. In case if you invested badly and your trade result is going in horrible way you are safe still because Bitmex protect yours from negative balance two ways:
Bitmex cross margin – all deposit involved
If you trade at Bitmex using margin cross means that you open trade(s) and all your deposited btc will be used to cover your potential loss. Disadvantage is that is the worst scenario you can lose here all money you deposited if price change in opposite side than you expected. But Bitmex never allows you to get you balance under zero and put you into debts. Never because there is liquidation price mechanism and you have here negative balance account protection.
In this case advantage is that your liquidation price is farer away comparing to separate margin.
Bitmex cross margin - Conclusion: You risk 100% of you deposit but you have negative balance protection (NBP).
Bitmex insurance fund makes impression. We are close to 36 000 BTC in July 202o. Almost every day BitMEX insurance fund has more and more XBT which come from liquidated trades.
If your loss would exceed your deposit (or cost), Bitmex takes this amount and cover your loss from their big insurance fund. You will never see minus at your account because of liquidation mechanism.
Bitmex separate margin - for instance 1:20 for specific trade ("cost" risk)
In this case you are ever safer as not only you are protected from negative account balance as you can lose maximum all amount designed as deposit for this specific trade. For example, you have on your account 1btc and you opened Bitcoin trade worth 3btc with leverage 1:50 and on the Bitmex platform you see that amount frozen in deposit in this situation is 0,06btc. It means that if do not have others trades open your loss can not exceed 0,06btc and rest for your btc (0,94) are 100% not at risk even your trade would be liquidated, or price of Bitcoin would change in 2 seconds about 500$. Disadvantage here is that with isolated margin you are closer to liquidation price and investing with huge leverage like 1:50 or 1:100 this 0,06btc can disappear really soon. Here you have negative balance trade protection.
Bitmex Separate Margin Conclusion: you can lose all you saw as COST (at Bitmex platform) before you opened a trade.
Read also: Bitmex leverage explained
Additional information about Bitmex leverage
Bitmex leverage is flexible even during open trades you can switch from margin cross into separated 1:20 or vice versa, you can switch form 1:50 into 1:10, you can add more margin to already frozen every time as well if your account balance allows for it. Keep in mind that always you change leverage your liquidation price is changed as well.
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