Bitmex Review | Is Bitmex Safe to Buy and Trade Crypto?
BitMEX is a well-known cryptocurrency trading platform. However, if you are new to the world of cryptocurrency, it is also one you should be very careful about using. In our Bitmex review, we’ll look at why this is the case.
BitMEX Review - Is BitMEX Safe?
If you are new to trading or new to the world of cryptocurrency, BitMEX likely isn’t for you. On trading platforms like Poloniex and Binance, traders and investors buy and sell digital assets in the hope of making a profit. However, this is not how BitMEX works or is designed to work.
What is BitMEX?
Bitmex stands for Bitcoin Mercantile Exchange. When users use Bitmex, they don’t buy or sell physical Bitcoin or other altcoins. Instead, Bitmex operates as a peer-to-peer platform where users trade leveraged, Bitcoin-based derivatives contracts.
What are Leveraged BitMEX Derivatives Contracts?
BitMEX offers users several different kinds of derivative trading options. In all cases though, derivatives contacts are essentially speculative bets on whether the Bitcoin price (or other digital asset prices) will go up or down over a predefined period.
To start using Bitmex, users deposit Bitcoin they own on the platform. Traders can then elect to open long or short positions in which they can buy a Bitcoin contract worth up to 100% more than the value of the Bitcoin they own. Users also select contact duration times which can last anywhere from a few hours to several months.
BitMEX Trading Risks
If a trader on BitMEX buys a contract worth 100% more than the amount of Bitcoin they own, and they are right in predicting that the Bitcoin price will rise or fall during the duration of a contract, they will make a phenomenal profit. Sadly, the opposite is also true.
The problem with leveraged trading and derivatives contracts on Bitmex is simple. If a speculative bet on a leveraged trading position looks unlikely to prove accurate, traders will need to deposit more Bitcoin they own to keep their position open. This is necessary for Bitmex to mitigate the increasing level of risk involved with a trade.
If a Bitmex user is unable to deposit more Bitcoin to compensate for increased risk, trades and contracts are automatically liquidated. As a result, traders lose everything. This is very different from regular trading on platforms like Poloniex for several reasons.
• On Bitmex, falling digital asset prices (or rising digital asset prices if you bet prices will go down) often result in a complete loss of funds due to trades being liquidated.
• When buying or selling digital assets on other exchanges, traders still own coins when trades don’t go in their favor, even if their value has decreased sharply.
• By still owning coins, traders on platforms like Poloniex and Binance can hold coins in the hope that prices recover, and they may recoup losses later.
BitMEX Review - Should You Consider Trading on BitMEX?
Derivatives trading and leveraged trading can be phenomenally profitable. However, derivatives and leveraged trading is also phenomenally high-risk. This being the case, if you have no prior trading experience or are new to the markets, platforms like Bitmex should be avoided.
Of course, if you are familiar with how derivatives and leveraged trading works, Bitmex may be a platform you want to consider using. Just remember that because it is not possible to buy Bitcoin on BitMEX, you will need to deposit Bitcoin purchased elsewhere to get started.
Posted by: Duane Seamans, MyBTC.ca CEO
DISCLAIMER: This article is for educational use and should not be considered investment advice.