One of the simplest and most profitable Cryptocurrency Arbitrage The strategy is to get the basis between spot and futures contracts. Basis Trading. This article provides step-by-step instructions on how to trade basis. cryptocurrency futures Trade spot using Bitcoin and BitMEX futures contracts.
back to basics
Before going diving Trading Basics To trade cryptocurrency futures and spot, it is important to understand the terms listed below.
futures contract: Provides economic benefits to buyers and sellers by owning or shorting Bitcoin.
dot: Bitcoin price for immediate delivery.
basic: Futures price – Spot price
To explain this strategy in more depth, see BitMEX’s XBTU23 Let’s take a futures contract as an example.
You can check detailed contract details here.
Step 1: Spot purchase vs. sell futures
Assume the XBTU23 price is $30,100 USD and the spot price is $30,000 USD. This brings the basis to $100.
Meet Karen. Karen deposits US$30,000 into BitMEX Spot and uses it to purchase one Bitcoin on her exchange. She now buys 1 Bitcoin and sells $30,000 USD.
Karen invested 0.2 of one Bitcoin as margin to trade the XBTU23 futures contract. She then needs to calculate the exact amount of futures contract to sell.
Karen purchased $30,000 worth of Bitcoin. She will also make a profit = basis * number of bitcoins purchased.
Total USD to hedge = $30,000 + ($100 * 1 Bitcoin) = $30,100.
The hedge here refers to the US dollar futures contracts that Karen must trade to match her spot position.
Each XBTU23 contract is worth $1, so Karen needs to sell 30,100 contracts.
XBTU23 is utilized. This means you do not need to send the entire Bitcoin value of your order to BitMEX. The maximum leverage on the platform is 100x, but we recommend using 10x or less for this particular strategy.
Step 2: Calculate Profit
Karen purchased Bitcoin for $30,000 (spot price) and plans to sell it for $30,100 (futures price). She will get the full basis regardless of the Bitcoin price at the time of settlement.
XBTU23’s P&L is calculated in Bitcoin. Assume the agreed price is $30,000. Karen’s Bitcoin profit can be calculated as follows:
Bitcoin Profit Calculation = (1 USD / $30,000 – 1 USD / $30,100) * 30,100 = 0.0033 Bitcoin.
If the spot price on settlement date is $30,000, Karen’s 0.0033 Bitcoin is worth about $100. As expected, she earned $100.
Step 3: Settlement
Karen’s XBTU23 futures contract expires on September 29, 2023. Let’s assume the settlement price is 30,000 won.
The settlement calculation period begins at 11:30 UTC and ends at 12:00 UTC on the same day. that much .BXBT30M index – A 30-minute time-weighted average price (TWAP) is used. The final price of the settlement indicator is recorded every minute, and an average of 30 prices is taken to arrive at the final settlement price.
Any remaining Bitcoin that is not used as margin must be sold at the settlement price. When a futures contract expires, you can sell the margin and realized profits. Therefore, when the contract expires, Karen must sell her remaining bitcoins.
In the example above, Karen used 0.2 Bitcoin as margin and stored the remaining 0.8 Bitcoin. Now Karen must sell her remaining bitcoins between 11:30 and 12:00 UTC before her contract expires. After XBTU23 expires at 12:00 UTC, she will have a margin of 0.2 Bitcoin and a profit of 0.0033 Bitcoin.
In the best case scenario, Karen can sell all 1.0033 bitcoins and match the settlement price of $30,000.
Using the trading strategy above, Karen started with $30,000 and now has $31,000, generating a 3.33% return on capital. This is an example of how to trade cryptocurrency between futures and spot markets on BitMEX. Basis Trading.
For more educational resources on trading on BitMEX, visit our growing portal of educational guides covering trading and the broader cryptocurrency ecosystem here.
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