The hottest new altcoin on the block is Ether (ETH). Ether is the token used to power the Ethereum protocol’s smart contracts. Now that Ether is freely tradable, this post will explain the different ways to express bullish and bearish views on this new cryptocurrency.
Buying and selling Ether on a spot basis is quite simple. The most liquid Ether currency pair is Ether/Bitcoin (ETHXBT). Poloniex and Kraken are the leading exchanges by volume.
To buy Ether, send Bitcoin to the exchange and exchange it for Ether. This must be done on a fully funded basis (i.e. there is no leverage).
If you hold physical Ether, you can exchange it back for Bitcoin. Selling Ether you don’t possess is not possible.
For most of the readers of this blog, leveraged trading / speculating presents a more interesting way to trade Ether. With the exception of Bitcoin and Litecoin, leveraged or derivatives trading on altcoins was not possible. BitMEX recognised that Bitcoin traders would like to speculate on Ether with leverage and using only Bitcoin as margin.
BitMEX launched the ETH7D, weekly expiring ETHXBT futures contract, when spot trading became available last Friday. Each ETH7D contract represents 1 ETH. The contract expires each Friday at 12:00 GMT on the ETHXBT exchange rate. All margin, profit, and loss are conducted in Bitcoin. The maximum leverage allowed is 5x.
BitMEX Ether futures contracts allow traders to speculate on the future value of the ETHXBT exchange rate. A trader who wishes to go long 1,000 ETH, must buy 1,000 ETH7D contracts. The beauty of ETH7D is that it requires Bitcoin as margin. The maximum leverage is 5x. If the ETH7D price is 0.005, the trader must post 1 Bitcoin as margin (1,000 Contracts * 0.005 ETHXBT * 20%). If the price rises to 0.006, the profit is 1 Bitcoin = (0.006 – 0.005) * 1,000.
Short selling, or selling something you don’t possess is usually impossible with altcoins. Using ETH7D, traders are able to placed leveraged bearish bets on Ether as long as they own Bitcoin. For example, a trader who wishes to go short 1,000 ETH, must sell 1,000 ETH7D contracts. Again only Bitcoin is required for margin. If the ETH7D price is 0.005, the trader must post 1 Bitcoin as margin (1,000 Contracts * 0.005 ETHXBT * 20%). If the price falls to 0.004, the profit is 1 Bitcoin = (0.004 – 0.005) * -1,000.
Placing leveraged trades, and shorting Ether are only possible with BitMEX’s ETH7D futures contract. ETH7D Contract Description