Ripple is a venture-backed startup that provides global financial settlement solutions to enable the world to exchange value. Ripple differs from Bitcoin in that it is a decentralised transaction network that also contains the currency Ripple, denominated by the currency code XRP. It uses an iterative consensus process to reach network process as compared to the Proof-of-Work with the Bitcoin Blockchain. This allows Ripple to finalise transactions faster than Bitcoin, in addition the Ripple network can track information of any kind, not just the Ripple currency. Further information about the Ripple network and the currency XRP can be found here.
BitMEX currently offers two types of XRP derivative products for traders. The first is in the form of a Ripple / USD (XRP/USD) Perpetual Contract and the second is in the form of a Ripple / Bitcoin (XRP/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 XRP/USD contract has a fixed Bitcoin multiplier regardless of the USD price of XRP. This allows the trader to go long or short the XRP/USD exchange rate without ever touching XRP or USD. The trader will post margin in Bitcoin, and make or lose Bitcoin as the XRP/USD exchange rate changes.
The XRPUSD contract’s underlying price is the XRP/USD exchange rate as recorded in the .BXRP Index. The swap contract is quoted in USD. Margin and PNL are denominated in Bitcoin.
|Bitcoin Multiplier per 1 USD||0.0002 XBT|
|XBT Value||XRPUSD Price * Bitcoin Multiplier|
|USD Value||XBT Value * .BXBT Spot Price|
|XRP Value||XBT Value / .BXRPXBT Spot Price|
|Bitcoin PNL Calculation||(XRPUSD Exit Price - XRPUSD 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 XRPUSD Perpetual Contract features a leverage of up to 50x. For example, to buy 50 Bitcoin worth of contracts, you will only require 1 Bitcoin of Initial Margin.
As the XRPUSD 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 XRPUSD Contract Specifications.
BitMEX Derivative: XRPUSD Perpetual Swap Contracts: 100,000 Bitcoin Multiplier per 1 USD: 0.0002 XBT .BXBT Spot Price: $10,000 XRPUSD Swap Price: $0.40 .BXRPXBT Spot Price: 0.00004 XBT
Jason and Chen trade the XRPUSD 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 0.0002 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 XRPUSD Quanto Swap.
XBT Value = XRPUSD Price * Bitcoin Multiplier * # Contracts
8 XBT = $0.40 * 0.0002 XBT * 100,000
Initial Bitcoin Margin = 8 XBT * 2% = 0.16 XBT
They both like to think in XRP terms at any given XRPUSD price. On the BitMEX Position Table, they are able to view the current value of their position in XRP terms.
XRP Value = XBT Value / .BXRPXBT Spot Price
200,000 XRP = 8 XBT / 0.00004 XBT
They notice that the XRP value can change either when the XRPUSD price changes, or when the .BXRPXBT spot price changes. The only fixed number in a Quanto derivative is the multiplier. The XRP and USD value will change as the XRPUSD, .BXBT, and .BXRPXBT prices change.
The XRPUSD swap price rises to $0.45, let’s compute Jason and Chen’s Bitcoin PNL.
Bitcoin PNL = (XRPUSD Exit Price – XRPUSD Entry Price) * Bitcoin Multiplier * # Contracts
Jason Bitcoin PNL = ($0.45 - $0.40) * 0.0002 XBT * +100,000 = 1 XBT Profit
Chen Bitcoin PNL = ($0.45 - $0.40) * 0.0002 XBT * -100,000 = 1 XBT Loss
Notice that the only variable that affects the PNL is the movement of the XRPUSD price. Neither the .BXBT, nor the .BXRPXBT exchange rate affect either trader’s PNL.
On BitMEX, the XRP derivative is in the form of a Futures Contract and allows traders to speculate on the future value of the Ripple / Bitcoin (XRP/XBT) exchange rate. Traders need not have Ripple to trade the futures contract as it only requires Bitcoin as margin.
The XRP futures’ underlying is the XRP/XBT exchange rate as recorded in the .BXRPXBT Index. The futures are quoted in Bitcoin and all margin and PNL calculations are denominated in Bitcoin.
|XBT Contract Value||Multiplier * Futures Price * 1 XRP|
|USD Contract Value||XBT Contract Value * XBTUSD|
|PnL Calculation||# Contracts * Multiplier * (Exit Price - Entry Price)|
Traders who think that the price of XRP 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 XRP futures contracts feature a leverage of up to 20x. For example, to buy 10 Bitcoin worth of contracts, you will only require 0.5 Bitcoin of Initial Margin.
The XRP futures contracts settle on the .BXRPXBT30M Index Price. Settlement will occur on the last Friday of the Settlement Month.
A trader wants to go long 10 XBT of XRP futures contracts. XRPU19 (the XRP futures contract expiring in September 2019) trades at 0.00002 XBT. As the leverage is 20x, the trader only needs 0.5 XBT of margin for this trade. The trader must buy 500,000 contracts:
10 XBT / (0.00002 XBT * 1).
A few days later, the price rises to 0.000025 XBT and the trader sells all their contracts.
The trader’s profit will be:
500,000 * 1 * (0.000025 - 0.00002) = 2.5 XBT