On its Way: The World’s First Crypto-Margined Perpetual FX Swap

A new breed of crypto derivative is about to arrive on our platform. In one week’s time, users will be able to trade crypto’s first-ever perpetual FX swap listings – with up to 50x leverage. 

It’s an addition that will allow users to trade and speculate on some of the most popular foreign currency pairs 24/7 – even when the foreign exchange (FX) market is closed. What’s more, users will get the chance to long or short FX pairs (e.g. EURUSD) – margined and settled exclusively in Bitcoin (XBT) and Tether (USDT ERC-20).

The introduction of foreign exchange swap contracts will unlock new trading strategies and enhance the versatility of BitMEX as a whole. It’s all part of our ongoing focus to provide both our existing and new users with a broader range of crypto-margined contracts, including products that will allow traders to trade different currencies and commodities.

Ahead of their arrival, this blog looks at the finer details of our 22 upcoming FX swap contracts. Get ready and read on for the 101 on crypto-margined FX swaps, or click here to create a BitMEX account today

Perpetual Foreign Currency Swaps, Explained

A new type of crypto derivative invented by BitMEX, the FX perpetual swap allows traders to capitalise on price differences in foreign currency pairs, such as EUR/USD and USD/MXN.

Users who trade our FX contracts can post margin in Bitcoin (XBT) or Tether (USDT ERC-20) – and profit in XBT or USDT terms – as the exchange rate of a specific foreign currency pair changes.

As they’re margined and settled exclusively in crypto, our FX perpetual swap products can be traded 24/7 – without ever touching fiat currencies. When the FX market is closed and no FX prices are available, the contract will trade around the Friday close.

Like our other perpetual swap contracts, FX perpetual swap contracts on BitMEX also pay a funding rate (i.e. periodic payments to traders that are long/short based on the difference between perpetual contract markets and spot prices). You can learn about how our funding rates are calculated here.

Perpetual Contracts: Key Features

Perpetual swaps are similar to futures contracts, which let traders buy or sell an asset at a predetermined date for a specified price. That being said, perpetual contracts have several distinguishing features:

  • Perpetual contracts are traded in perpetuity, meaning there’s no expiry or settlement other than an early settlement event as further described here. Traders can hold perpetual swap contracts for as long as they wish, provided that sufficient margin is maintained to keep their positions open. 
  • Perpetual contracts mimic a margin-based spot market and hence trade close to the underlying reference index price.
  • The funding mechanism is used to tether contracts to their underlying spot price.
  • This is in contrast to futures contracts, which may trade at significantly different prices; the reason being futures contracts expire in the future, and there is either a positive or negative time value element attached to that expiry uncertainty.

Perpetual contracts are a popular option among more advanced traders, who want to profit from an asset’s price changes without holding the asset itself.

What Does Margin Mean in Crypto?

Margin trading allows users to open larger positions by requiring less collateral. It’s also sometimes referred to as ‘trading with leverage’, because it provides traders with increased purchasing power to leverage their positions. Traders with leveraged positions face more risk, but also the possibility of greater gains. This is different to regular spot trading.

In the crypto derivative trading space, margin refers to the amount of funds needed to enter into a leveraged position. So when we refer to our upcoming FX perps as USDT- or XBT-margined contracts, we mean that the contract is margined and settled in either USDT or XBT. 

When trading futures and perpetual swap contracts on BitMEX, traders are not required to post 100% of their collateral as margin – meaning users can trade with up to 50x on FX perps and up to 100x leverage on some of our contracts. In other words, users can trade notional amounts that are multiples of their collateral. You can learn more about margin and settlement here.

What Are Foreign Currency Pairs?

A foreign currency pair is a quotation for two different currencies – i.e. the amount you would pay for one currency for a unit of another currency. For example, when someone is quoted 0.9000 for the EUR/USD FX pair, it means that they can exchange €1 EUR and receive $0.9 USD. Foreign currency pairs are traded in the forex market – the world’s largest and most liquid asset class.

Within the foreign exchange market, currency unit prices are quoted as currency pairs. The first currency within a currency pair quotation (e.g. ‘EUR’ in EUR/USD) is considered the “base currency”, with the second part of the quotation being the “quote currency”. 

How Perpetual FX Swap Products Work

The mechanics of our perpetual FX swap products are as follows:

  • FX perps are exchange-traded through a central limit order book (CLOB). The funding rate mechanism assures that the trade price stays close to the index price (which is a composite FX spot price). 
    • Note: Funding occurs every 8 hours at 4:00 UTC, 12:00 UTC, and 20:00 UTC. You will only pay or receive funding if you hold a position at one of these times. 
    • When the funding rate is positive, longs pay shorts. When it is negative, shorts pay longs. Examples are available here.
  • Traders can buy FX perps via limit and market orders. The liquidity of the orderbook determines the spread and slippage in a transparent way.
  • Our foreign currency swaps are margined and settled in either Tether (USDT ERC-20) or Bitcoin (XBT). 
  • Our FX perps allow users to trade with up to 50x leverage, meaning users do not need to post 100% of their collateral as margin.
  • There are three types of perpetual forex contracts on BitMEX:
    • Quanto contracts: This is a type of crypto derivative where the underlying pair is denominated in two assets, but the derivative is settled in a third, “quanto” asset. As with all listings of this type, our quanto FX swaps have a fixed XBT multiplier – regardless of the FX price, a trader will gain or lose a set amount of XBT for a given move in the price (e.g. traders who long 1 contract of USDINR will gain 1 satoshi for every pip (0.0001) move up in the price). You can learn more about quanto perpetual contracts here.
    • Inverse contracts: When trading inverse contracts, users deposit a specific cryptocurrency to begin with and these contracts settle in the underlying cryptocurrency (as opposed to the quote currency). For example, users who trade USDT/MXN would receive their payouts in USDT. You can learn more about inverse contracts here.
    • Linear contracts: These are linearly-settled contracts that do not directly touch fiat, but pay out with more intuitive USD-like assets (i.e. stablecoins like USDT). You can learn more about linear contracts here.

FX Swap Trading: Examples

To illustrate the benefits of FX perp trading, we’ve included several example scenarios below (needless to say, the persons mentioned below are not real):

  • Hedger: Amy is a trader, and has trading positions and margin in USD and USDT. With the Euro hovering close to parity with USD, she wants to protect the EUR value of her holdings – so she decides to long EURUSDT, a linear FX swap, to synthetically sell USD vs EUR. When EUR appreciates, her swap position will gain value – subsequently offsetting her EUR loss on her USD/USDT holdings. Conversely, if EUR depreciates, her swap loses and her holdings gain in value.
  • Speculator: Becky, a BitMEX trader, has a strong directional view that, based on upcoming global events, the South African Rand (ZAR) will weaken in the near future. She wants to profit from this view – and uses her Bitcoin holdings to trade the USDZAR FX swap, which is margined in XBT. So, she goes long 10,000 contracts of the USDZAR quanto swap at 17.00 with 20x leverage. Each contract will gain 0.0001 XBT for every 1 ZAR increase in price. If the price rises to 18.00, Becky will gain 1 XBT on her position (before funding gains/losses) – making a return on equity of 117%.
  • Market maker: Todd is a market maker (i.e. a user placing maker trades on BitMEX), and acts as a liquidity bridge between BitMEX and TradFi markets. Todd makes markets on BitMEX – e.g. by quoting a one-way price on the USDTCNH FX perp of 6.77 – 6.78, and is ready to react to the various prices they’re trading at.

    If a trader buys from Todd on his BitMEX offer price of 6.78, he will try to neutralise his risk by buying via a market order on another venue. In this scenario, he will earn one basis point rebate as a market maker on BitMEX per our current fee schedule, which he expects to be worth more than the cost of the market order on the TradFi venue. He makes his money by regularly capturing the bid/offer spread, while remaining as risk-neutral as possible.
  • Arbitrageur: Like Todd, Bob also has access to BitMEX and TradFi markets, and acts as a liquidity bridge between both worlds. As an arbitrageur (pardon our French), he’s always looking for risk-free or low-risk trades that profit from short-term discrepancies between the two markets.

    He may notice that – after adjusting for funding – NZDUSDT on BitMEX is trading at 0.6300 vs the NZDUSD spot market of 0.6200. Expecting this price discrepancy to close up, he sells 1 million contracts of NZDUSDT and buys 1 million NZD vs USD in the fiat spot market. If the prices converge to 0.6000, he will make 30,000 USDT on his BitMEX position and lose 20,000 USD on his spot position – meaning he’ll make approximately 10,000 USDT.
  • Access: Ekin-Su is a trader, and receives her income in a currency that is not freely convertible. She is worried about the depreciation of said currency. To hedge against this risk, she can use her existing USDT crypto holdings to trade an equivalent FX pair – for example, by going long/short on an inverse FX swap. By doing so, she will synthetically sell said currency vs USDT.

Coming Soon to BitMEX: More Listings, Offers, and Giveaways

We’ve been working hard behind the scenes to enhance the accessibility of our platform. Over the coming weeks, we will be launching more crypto derivatives contracts, BMEX offers, and Twitter giveaways – including a USDT giveaway to celebrate the launch of our first-ever FX swap product. More on this to come.

Download the BitMEX Mobile app to trade your favourite crypto derivatives contracts and spot pairs on the go, and connect with us on Discord, Telegram, and Twitter to be the first to know about our new listings and giveaways. 

In the meantime, if you have any questions please contact Support.