BitMEX Alpha: No FOMO, just funding rates

Note: Nothing expressed below should be considered financial advice. This is just a suggestion so that users can learn more about the trading strategy. Users are always encouraged to do as much research as possible before executing any trade. The information below is not intended to represent guaranteed returns, and BitMEX is not responsible if your trades do not perform as expected.

Making money from cryptocurrencies, especially derivatives, is not always simple. That’s why we’ve launched “BitMEX Alpha,” a series where we share trading secrets about potentially profitable opportunities on BitMEX.

This time, let’s talk about funding ratio. If you’ve been feeling some FOMO in the cryptocurrency market lately but don’t want to risk taking a directional trade at these prices, here’s a trade you can try.

The recent market rally has pushed financing ratios to record highs. This means there is now a gold mine of basis trading opportunities. Transactions discussed include buying spot and selling perpetual futures contracts.

How does it work? The contracts listed below have high funding rates (where buyers pay shorts every 8 hours), which means traders who sell those contracts should receive a relatively higher funding payout.

We’ve categorized some of the basic trades for BitMEX’s Quanto and Linear Perpetual Contracts to suit your preferred contract type.

Let’s dive in.

What’s on the table?

Quanto contract

linear contract

The right-most column, APR (Based on Latest Funding Rate), shows the annual return you can earn from basic trading for each token.

How do you execute on an opportunity?

1. Buy (long) tokens spot or in conversion.
2. Sell ​​(short) the same amount of tokens as the perpetual contract.
3. IMPORTANT: Track your token’s funding rate. here.
4. If you think your funding rate will turn negative for an extended period of time, cancel the transaction.

For a step-by-step guide to perpetual contracts and spot-based trading, see “2. Swap Trading and Spot Trading”. article.

What is the profit potential?

It is impossible to determine. accurate The profits on these trades (since they depend on the funding rate which changes every 8 hours) and the funding rates on the mentioned contracts are much higher than what we usually see!

For those who want to play with Quanto contracts, keep in mind that these contracts are margined and settled in XBT (Bitcoin). This means that you could potentially make additional profits (or losses) due to price fluctuations in XBT. You can also further hedge your Bitcoin exposure by selling. XBTUSD or XBTUSDTThis is also a profitable basic trade.

For BMEX token holders – remember that you can earn up to 12% APR (in addition to trading fee discounts) by staking your BMEX tokens with us. So, if you want to earn more rewards while these basic trading opportunities are here, stake your BMEX with us. However, keep in mind that the minimum staking period is 2 weeks.

What should I consider?

• Exit and entry costs (e.g. trading fees and slippage) for both trades.
• There is execution risk when simultaneously trading spot and perpetual contracts, especially during volatile market periods.
• Considering that perpetual contracts can be traded up to 100x on BitMEX, there is a risk of liquidation. If the market price rises above the liquidation price, your position may be liquidated, leaving you exposed to an unhedged spot position. If you choose to use high leverage for your trading, you should monitor market conditions closely and top up your wallet to meet margin requirements. Alternatively, you can choose to trade with 1x leverage to avoid liquidation risk.

For quanto contracts

• To purchase Spot, you need USDT (Tether). Additional XBT (Bitcoin) is required as margin for perpetual contracts.
• Keep in mind that the Quanto contract is margined and settled in Bitcoin (XBT), so you are still exposed to XBT/USD price risk when trading the Quanto contract.

For linear contracts

• To purchase Spot, you need USDT (Tether). For perpetual contracts, additional USDT is required as margin.

Like what you read? We have more trading guides covering derivatives trading, technical analysis, bot trading, and more. Take a look here.

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