Currently BitMEX only accepts Bitcoin as collateral. That means margin, profit, and loss must all be paid or received in Bitcoin. However, through the use of financial engineering, BitMEX can give users exposure to any underlying price.
BitMEX currently offers a Ether / Bitcoin (ETH/XBT) contract. Many clients also wish to trade a Ether / USD (ETH/USD) contract. Because BitMEX does not accept any other form of collateral besides Bitcoin, the platform uses a derivative called a Quanto.
A Bitcoin Quanto ETH/USD contract has a fixed Bitcoin multiplier regardless of the USD price of ETH. This allows the trader to go long or short the ETH/USD exchange rate without ever touching ETH or USD. The trader will post margin in Bitcoin, and make or lose Bitcoin as the ETH/USD exchange rate changes.
| | | | Bitcoin Multiplier per 1 USD | 0.000001 | | XBT Value | ETHUSD Price * Bitcoin Multiplier | | USD Value | XBT Value * .BXBT Spot Price | | ETH Value | XBT Value / .ETHXBT Spot Price | | Bitcoin PNL Calculation | (ETHUSD Exit Price - ETHUSD Entry Price) * Bitcoin Multiplier * # Contracts |
BitMEX Derivative: ETHUSD Perpetual Swap Contracts: 1,000 Bitcoin Multiplier per 1 USD: 0.000001 XBT .BTBT Spot Price: $10,000 ETHUSD Swap Price: $500 .ETHXBT Spot Price: 0.05 XBT
Jaewon and Wang trade the ETHUSD Perpetual Swap against each other for 1,000 contracts. Jaewon goes long, and Wang goes short. For each 1 USD move, the contract pays out 0.0001 XBT; this is called the Bitcoin multiplier.
They agree that each side can use 50x leverage, which means they post 2% initial margin to BitMEX to initiate the trade. To calculate the Bitcoin margin, they first calculate the Bitcoin value of their ETHUSD Quanto Swap.
XBT Value = ETHUSD Price * Bitcoin Multiplier * # Contracts
50 XBT = $500 * 0.0001 XBT * 1,000
Initial Bitcoin Margin = 50 XBT * 2% = 1 XBT
They both like to think in ETH terms at any given ETHUSD price. On the BitMEX Position Table, they are able to view the current value of their position in ETH terms.
ETH Value = XBT Value / .ETHXBT Spot Price
1,000 ETH = 50 XBT / 0.05 XBT
They notice that the ETH value can change either when the ETHUSD price changes, or when the .ETHXBT spot price changes. The only fixed number in a quanto derivative is the multiplier. The ETH and USD value will change as the ETHUSD, .BXBT, and .ETHXBT prices change.
The ETHUSD swap price rises to $505, let’s compute Jaewon and Wang’s Bitcoin PNL.
Bitcoin PNL = (ETHUSD Exit Price – ETHUSD Entry Price) * Bitcoin Multiplier * # Contracts
Jaewon Bitcoin PNL = ($505 - $500) * 0.0001 XBT * +1,000 = 0.5 XBT Profit
Wang Bitcoin PNL = ($505 - $500) * 0.0001 XBT * -1,000 = 0.5 XBT Loss
Notice that the only variable that affects the PNL is the movement of the ETHUSD price. Neither the .BXBT, nor the .ETHXBT exchange rate affect either trader’s PNL.