How trading BitMEX futures with the Dcrypt platform can save you 70% of your capital
This writeup was inspired by BambouClub’s recent report. If you haven’t already, you should check out his medium page for high quality guides on BitMEX trading.
Leveraged trading on BitMEX is a double-edged sword. It can lead to significant profits or complete bankruptcy. The key to successfully trading with leverage is managing your risk and reducing the chance of liquidation. So how exactly do you reduce the chance of liquidation, or even eliminate it completely? The easiest way is by using stop loss orders.
Let’s walk through an example of how this works using the Dcrypt Platform.
Liquidation Price?
When trading with leverage on BitMEX, the liquidation price is the price at which your position will be automatically overtaken by the BitMEX liquidation engine, and closed out at market. When this happens, you lose your entire deposit on the trade (initial margin). The higher your leverage, the closer your liquidation price is to your entry price.
How do Stop Losses Prevent Liquidation?
A stop loss is an order that is used to close your current position when prices start moving against you. To avoid liquidations, you set a stop loss right before your liquidation price, that way, your position will be closed before the price is hit. Doing so can reduce your losses by up to 70%
Stop Market Vs Stop Limit
A stop loss can either be placed as a stop market or stop limit order. The major difference is that a market order will execute immediately and incur a higher fee, where a limit order will guarantee an execution price and incur a lower fee. The risk with stop limit orders is if a price is falling quickly, you cannot guarantee your position will close out before the liquidation point is hit.
Using Dcrypt to Avoid Liquidation
For this example I will short 1 contract of BCH @ .0563 with 20x leverage, making my initial margin requirement or “cost” .003097 XBT. (Note that I do not recommend trading with such high leverage).
Find your Liquidation Price
The first step is to check the chart on the Dcrypt platform to find my liquidation price, which is .0577 XBT. Notice how close this price is to my entry price due to high leverage.
Place Your Stop Loss Order
To make sure my position is closed before the liquidation price is hit, I will place a protective stop market order that will be triggered at .0575 XBT. (note stop is placed.0002 XBT away from my liquidation price)
How much money did I save?
After my order was triggered, I compared the loss with the initial margin cost of the order. The PnL of my trade net of fees came out around -.001 XBT. If I didn’t place a stop less, and was liquidated instead, I would lose the entirety of my initial margin which was .0031 XBT. In this case I was able to save 68% of my capital by placing a protective stop loss slightly below my liquidation.
Dcrypt is an investment platform for the cryptocurrency markets. providing BitMEX traders with advanced analytics and execution tools. If you’re interested in trying it out, you can sign up for a free 30 day trial here: https://dcrypt.io/register
