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 conensus 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.
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 on Poloniex as recorded in the .XRPXBT 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 .XRPXBT30M Index Price. Settlement will occur on the last Friday of the Settlement Month.
A trader wants to goes long 10 XBT of XRP futures contracts. XRPM17 (the XRP futures contract expiring in June 2017) 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