What is Bitmex downtime and what with my stop orders (stop loss)? - explained
Updated: Jul 15, 2020
Bitmex downtime is not when you see
notification: system overloaded. During "overloaded system" at Bitmex... Yes your stop losses shoud work but only in this case when you insert your stop orders....correct way! How to set up correct stop loss in Bitmex exchange platform?
Bitmex is not market maker and always when you sell somebody have to buy!
Several times in a year, you can experience go down Bitmex platform when Bitcoin prices stopped changing and you were logged out. And you cannot log in again. This downtime often when prices change rapidly
Traders are waiting for re-open trading at Bitmex after downtime and ask:
What with my stop limit orders? What with my profits? WTF now?
Let’s consider what happen if…
Bitcoin last price is 7300$ next suddenly Bitmex went downtime for 30min
and next new last price is 7000$ (and nothing was traded in the middle).
Look at screenshot from our calculator and let’s consider scenarios 2&3
Scenario 2 – poor trader (A) with long buy
Trader-A had opened 100,000 contracts buy long at 7300 with 1:50 leverage
What means deposit taken by Bitmex 0,2740 BTC
Estimated liquidation price for this trade was: 7192
Let’s say trader-A set stop loss at 7200 (by Last Price)
And after 30min break in Bitmex trading market re-open at…7000
What now? How to calculate loss? Can trader-A lose more than he invested?
Without NBP he should lose much more than 100%.
In this case forget about stop loss order, it will not work, and this trade will be “just“ liquidated. You don’t care at what price gone as you have negative balance protection (NBP – read more here). Trader-A lost all BTC allocated for this trade so… 0,2740 BTC but no more!
What if trader-A had more available BTC deposited on his Bitmex account?
Let’s say he had 1BTC more than he allocated for this unlucky trade. What in this case?
Nothing changes, he can lose only deposit already taken by Bitmex for this trade – no more! That is why liquidation price mechanism was created – to protect our cash.
Keep in mind if you use Cross Margin your loss is not limited to your inital deposit and you can clear your account to dead end this way. Margin Cross is useful but for more expirenced traders.
Scenario 3 – lucky trader “B” with sell short
Trader-B had opened 100,000 contracts sell short at 7300 with 1:50 leverage
What means deposit taken by Bitmex is again 0,2740 BTC
Estimated liquidation price for this trade was: 7412
Let’s say trader-B set stop order to take profit at 7200 (by Last Price)
And after 30min break in Bitmex trading market re-open at…7000
What now? How to calculate trader-B profit?
His take profit order will be executed at first available price when Bitmex platform re-open (go up). We can expect it will be much less than 7200 and probably about 7000 what make trader-B so happy. His ROE will be around +200% which in this case is 4,000$. 2x more than deposit taken.
This is huge massive orders mess after downtime. Think how to use as an advantage as often BTC prices (for a while) are a little different comparing to Bitmex Mark Price Index. In situations like this Bitmex uses their BTC from Bitmex Insurance Fund to cover the difference between trader-A loss and trader-B profit. Insurance Fund is dedicated for cases like this in 100%.
By the way: Keep in mind and remember to correct set up stop loss limit to your original trade with checked option reduce-only. It must be connected this way. Otherwise system will not recognise this order as opposite to your original one and when you close your original trade by your hand or by take profit this order (for long) still will be in orderbook as sell short… if price decline.
Why we get Bitmex downtime?
The main reason is that Bitmex engines and server’s capabilities were not prepared for this large number of traders who amend, execute, set up or cancel order etc in the same one second. When prices are changing so rapidly like 20-40USD per second on Bitcoin (or 5-10USD on ETH) there can be a huge problem at Bitmex platform as now everybody want to execute own trade.
How often it occurs?
Currently it is several times in a year. The key reason here huge range of volatility in a short period of time. It comes to Bitmex downtime and this is the main factor. Usually it takes 30-80 minutes to restart system to normal trading. Bitmex constantly improve their trading capability which is the biggest at the earth anyway.
Comparing this issue to another’s exchanges, Bitmex still looks good and keep in mind that this is the largest leveraged cryptocurrency exchange on the planet with average volume 4bln $ daily!
Bitmex publishes about system problems almost immediately on their Twitter. Apologies and attempt to estimate when they will resolve downtime. Unfortunately, what is reasonable if you lose money during downtime, Bitmex rather cannot give you nothing back as these happy traders who earned will not return their money. This is kind of gambling.
Ministry of Margin Trading recommend your traders always: not to deposit all Bitcoins at one time into your Bitmex account. We encourage to other style of investing like: divide your dedicated BTC for Bitmex high leverage trading into 10 parts and you daily max loss is 1/10 of your BTC. Or just trade with a small leverage like 1:1 up to 1:5 – what is not so easy as there is always huge temptation to use x50 or x100.
Summary and advise how to manage your capital to avoid the worst:
System is working perfect during 99,99% time but We suppose you wouldn’t like to become bankrupt because of the black Swan as we can call Bitmex downtime.
Do want to invest 1BTC? And you want to send it today into you Bitmex account to trade with x50 or x100 leverage? It is not good idea. Invest 0,1BTC today or even less. If you lose 0,1BTC next day you start with another 0,1BTC. You never know when expect next downtime, what is more you can click fat finger by mistake as well and what? On the end of the day if you have more than this 0,1BTC – withdraw this. Don't go never all-in here with high leverage! Never!
The key is rule:
High leverage? Go with small amount of XBT contracts (short term invest - scalping)
Small leverage? Can try with larger quantity of contracts (mid and long term perspective)