BitMEX vs. CME futures guide

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Bitcoin is at a watershed moment. Prior to this contract, derivatives traders were required to own Bitcoin in order to post margin on futures trading platforms such as BitMEX. Due to the different client bases that BitMEX retail and the CME professional investors serve, the price discrepancies between two futures contracts with the same underlying will present enormous opportunities to generate arbitrage profits.

This guide will walk traders through how to execute such trades. The above chart shows the XBT value of each contract. The Bitmex futures trading contract has a fixed value in Bitcoin no matter the spot price. Technically speaking, the BitMEX multiplier is negative, even though in the graph uses a positive multiplier for a bitmex futures trading visualisation.

This means that the value in Bitcoin declines faster as the price falls, and increases slower as the price rises. That is negative gamma, or negative convexity. The above chart shows the USD value of each contract.

To achieve a similar notional on BitMEX requires 40, contracts. When I touch on spread trades later, the much larger CME notional means that only traders with large amounts of capital can put on these trades. This limiting factor, along with the lower leverage offered by the Bitmex futures trading, means that most retail traders will be unable to trade the CME product.

The first major difference bitmex futures trading the two contracts is the underlying index. Traders who hold either contract to expiry will need to familiarise themselves with each index, and at a minimum be able to trade on all four exchanges.

However, BitMEX bitmex futures trading at Given that the expiry time differs by only three to four hours, there is little benefit to adjust the time value when computing relative basis. Bitcoin is a call option. The more volatile it is, the more valuable the option. Due to an infinite upside, and a capped downside at zero, the trading pressure on the margin comes from longs. That means that market makers who are bitmex futures trading neutral will usually be short derivatives. Their bitmex futures trading to quote an offer depends on how easily it is to purchase spot Bitcoin and how their short derivative is margined.

That means that shorts can purchase spot Bitcoin and use this as collateral against their BitMEX short. That means that as the price rises, their unrealised losses increase less quickly. Therefore, BitMEX shorts bitmex futures trading use more leverage than they otherwise would if the contract used a linear contract structure.

A market maker who is short cannot use their spot Bitcoin hedge as margin at the CME. Bitmex futures trading the price rises, their Bitcoin is worth more; however, those unrealised USD gains cannot be bitmex futures trading as margin. This makes shorting the CME contract very capital intensive.

CME shorts need to be compensated via a higher basis for their implicit short volatility position. The CME intends to list a futures curve out to one year. The back end of the curve, due to a larger time value, will be illiquid when compared bitmex futures trading the front months, and will trade at a very high basis. The table below stresses the portfolio on a large up and down move. Both of these derivatives require additional margin.

Depending on your cost of capital, a prolonged down move without any bitmex futures trading could become very expensive. Another issue is the sizing of this trade. Otherwise you will always be over and under hedged. The below table illustrates this point. As you can see, go big or go home. The below table stresses the portfolio on a large up and down move. Because you have positive gamma on the short BitMEX position, you will not face a doubling of margin requirements when the price falls.

This spread trade is more capital efficient; however, I doubt whether BitMEX will frequently bitmex futures trading more expensive than the CME for reasons described above. The CME does not trade over the weekend.

Longs or shorts depending on the price action over the weekend, could be insta-rekt when the exchange reopens Sunday night US time. They are scared shitless about how to deal with underwater shorts.

Imagine what will happen when an ETF finally is approved. BitMEX deals with gap risk bitmex futures trading auto-deleveraging. The CME at the present moment cannot employ a socialised loss feature. Instead, clearing members must pony up the cash. That is why they are being such scaredy cats. Depending on your broker, margin requirements for short positions could be extremely unforgiving.

This will push CME basis up even further, and make putting on the spread trade, described above, even more expensive. The different margin bitmex futures trading and policies present many opportunities to transform what is a sure profit into a massive loss. However, owing to their difficulty, these spread trades will be juicy.

For students of markets, this is an arbitrage opportunity bitmex futures trading a lifetime. Those who put in the time to perfect these strategies will profit handsomely. Skip to content Bitcoin is at a watershed moment. Settlement The first major difference between the two contracts bitmex futures trading the underlying index.

Margin Bitcoin is a call option. I will now present two spread trades. Assume that you are a USD-based investor. The table below summarises what actions must be taken to ensure we meet margin requirements.

Gap risk Bitmex futures trading CME does not trade over the weekend.

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