Litecoin is an alternative digital currency to Bitcoin but capable of handling higher transaction volume and is denominated by the currency code LTC. Due to more frequent block generation, the network supports more transactions without a need to modify the software in the future. As a result, merchants get faster confirmation times, while still having ability to wait for more confirmations when selling bigger ticket items. Further information about the Litecoin Project and LTC can be found here.
BitMEX currently offers two types of LTC derivative products for traders. The first is in the form of a Litecoin / USD (LTC/USD) Perpetual Contract and the second is in the form of a Litecoin / Bitcoin (LTC/XBT) Futures Contract.
Currently BitMEX only accepts Bitcoin as collateral. That means margin, profit, and loss must be paid or received in Bitcoin. However, through the use of financial engineering, BitMEX can give users exposure to any underlying price using a derivative called a Quanto.
A Bitcoin Quanto LTC/USD contract has a fixed Bitcoin multiplier regardless of the USD price of LTC. This allows the trader to go long or short the LTC/USD exchange rate without ever touching LTC or USD. The trader will post margin in Bitcoin, and make or lose Bitcoin as the LTC/USD exchange rate changes.
The LTCUSD contract’s underlying price is the LTC/USD exchange rate as recorded in the .BLTC Index. The swap contract is quoted in USD. Margin and PNL are denominated in Bitcoin.
|Bitcoin Multiplier per 1 USD||0.000002 XBT|
|XBT Value||LTCUSD Price * Bitcoin Multiplier|
|USD Value||XBT Value * .BXBT Spot Price|
|LTC Value||XBT Value / .BLTCXBT Spot Price|
|Bitcoin PNL Calculation||(LTCUSD Exit Price - LTCUSD Entry Price) * Bitcoin Multiplier * # Contracts|
All margin is posted in Bitcoin, that means traders can go long or short this contract using only Bitcoin. The LTCUSD Perpetual Contract features a leverage of up to 33x. For example, to buy 10 Bitcoin worth of contracts, you will only require 0.3 Bitcoin of Initial Margin.
As the LTCUSD contract is perpetual, there is no settlement. Marking for Unrealised PNL and Liquidation purposes are done according to the Fair Price Marking system. Note also: since this product is a perpetual contract, funding occurs every 8 hours. Please see the Funding Section in the Perpetual Contracts Guide for information, and for the current rates please see Funding Calculation in the LTCUSD Contract Specifications.
BitMEX Derivative: LTCUSD Perpetual Swap Contracts: 100,000 Bitcoin Multiplier per 1 USD: 0.000002 XBT .BXBT Spot Price: $10,000 LTCUSD Swap Price: $50.00 .BLTCXBT Spot Price: 0.005 XBT
Jason and Chen trade the LTCUSD Perpetual Swap against each other for 100,000 contracts. Jason goes long, and Chen goes short. For each 1 USD move, the contract pays out 0.000002 XBT; this is called the Bitcoin multiplier. They agree that each side can use 33x leverage, which means they post 3% initial margin to BitMEX to initiate the trade. To calculate the Bitcoin margin, they first calculate the Bitcoin value of their LTCUSD Quanto Swap.
XBT Value = LTCUSD Price * Bitcoin Multiplier * # Contracts
10 XBT = $50.00 * 0.000002 XBT * 100,000
Initial Bitcoin Margin = 10 XBT * 3% = 0.3 XBT
They both like to think in LTC terms at any given LTCUSD price. On the BitMEX Position Table, they are able to view the current value of their position in LTC terms.
LTC Value = XBT Value / .BLTCXBT Spot Price
2,000 LTC = 10 XBT / 0.005 XBT
They notice that the LTC value can change either when the LTCUSD price changes, or when the .BLTCXBT spot price changes. The only fixed number in a Quanto derivative is the multiplier. The LTC and USD value will change as the LTCUSD, .BXBT, and .BLTCXBT prices change.
The LTC swap price rises to $60.00, let’s compute Jason and Chen’s Bitcoin PNL.
Bitcoin PNL = (LTCUSD Exit Price – LTCUSD Entry Price) * Bitcoin Multiplier * # Contracts
Jason Bitcoin PNL = ($60.00 - $50.00) * 0.000002 XBT * +100,000 = 2 XBT Profit
Chen Bitcoin PNL = ($60.00 - $50.00) * 0.000002 XBT * -100,000 = 2 XBT Loss
Notice that the only variable that affects the PNL is the movement of the LTCUSD price. Neither the .BXBT, nor the .BLTCXBT exchange rate affect either trader’s PNL.
On BitMEX, the LTC derivative is in the form of a Futures Contract and allows traders to speculate on the future value of the Litecoin / Bitcoin (LTC/XBT) exchange rate. Traders need not have Litecoin to trade the futures contract as it only requires Bitcoin as margin.
The LTC futures’ underlying is the LTC/XBT exchange rate as recorded in the .BLTCXBT Index. The futures are quoted in Bitcoin and all margin and PNL calculations are denominated in Bitcoin.
|XBT Contract Value||Multiplier * Futures Price * 1 LTC|
|USD Contract Value||XBT Contract Value * XBTUSD|
|PnL Calculation||# Contracts * Multiplier * (Exit Price - Entry Price)|
Traders who think that the price of LTC will rise will buy the futures contract. Conversely, traders who believe the price will drop will sell the futures contract.
All margin is posted in Bitcoin, that means traders can go long or short this contract using only Bitcoin. The LTC futures contracts feature a leverage of up to 33x.
For example, to buy 10 Bitcoin worth of contracts, you will only require 0.3 Bitcoin of Initial Margin.
The LTC futures contracts settle on the .BLTCXBT30M Index Price. Settlement will occur on the last Friday of the Settlement Month.
A trader wants to goes long 10 XBT of LTC futures contracts. LTCU20 (the LTC futures contract expiring in September 2020) trades at 0.0050 XBT. As the leverage is 33x, the trader only needs 0.3 XBT of margin for this trade.
The trader must buy 2000 contracts:
10 XBT / (0.0050 XBT * 1).
A few days later, the price rises to 0.0060 XBT and the trader sells all their contracts.
The trader’s profit will be:
2000 * 1 * (0.0060 - 0.0050) = 2 XBT