From a Different Point of View – Trading Strategies for Bitcoin

It's important to point out that investment strategies are only ever effective when the individual does their research surrounding the method they'd like to use, and adheres to it. Deviations or a failure to acknowledge trends in the market can result in losses in capital.

Each of the ideas presented must be considered as such, with the reader using their initiative to properly researching before applying them.

These ideas pertain to an application on the Bitmax coin exchange, due to the set up of its exchange. Please note that this isn't an introductory guide to the exchange itself, but more a series of strategy ideas for those that are already comfortable with the interface and have invested either presently or in the past.

1. Follow the Funding Flow

Among the contracts that Bitmax has with its listed currencies and assets, one of those that investors should pay attention to is that XBTUSD contract. This deal includes a funding event which takes place every 8 hours, so depending on the positions you hold when the timer ticks down on this event, you either pay funding or you receive funding.

This isn't something to simply shrug off, as the funding events can be quite significant, with anything over 0.05% having a profound effect on the bitcoin market, shifting it up or down.

The Setup

How you can capitalize on this funding flow is by waiting for the event to begin, the investor should then open up a position that leaves them open to positive funding. This waiting time and position could be anything ranging from 4 hours to 30 minutes, and dependant on the stop loss that the investor finds it wise to use.

The Reasoning

One simple way to get a better grip of your funding position is understanding that it's calculated using the total leveraged amount of a newly created trading position.

This means that there are a number of positions that are highly leveraged, as a result, they don't want to pay into funding. This continual event creates an interesting, almost tidal dynamic when it comes to funding positions, with some loading up to take advantage of it, and those that want to get out before they're called upon to pay in.

As a result, people are far more likely to close their positions if it leaves them having to pay funding, especially when they can open a new position which receives funding. As a result, it's important to make a strategy around this so you can take advantage of this funding ebb and flow.

It's generally wise to close out your position before funding drops, not that it's not worth getting, but because after receiving funding, there will be major moves that work against you, as others will move to quickly cover their position after getting paid.

It's up to the reader to research the mechanics of how this does and will work for you in the future, including how to make the first moves. But overall, this remains one of the best strategies you can take on within this exchange.

One of the ways that you can secure an advantage and do some good research is through searching through Bitmex's transaction histories, in order to look for any larger transactions and funding, and check out their condition both before and after funding was paid.

2. Mean Reversion Hedge

The way that investors can capitalize on this method is to create a hedge between XBTUSD perpetual and an XBT futures contract. In this example XBTU18 is the futures contract.

As the futures price changes when compared to the XBTUSD, your profit and loss margins will change in conjunction with it.

The Theory

The futures contract always moves in perpetuity to the underlying value associated with XBTUSD, it also changes its price between being bought at premium and discount rates.

If you are short XBTU18 futures and long XBTUSD then you want the futures price to move closer to the XBTUSD price.

Before taking on this sort of strategy, it's important to have these factors in consideration:

The futures contract will [generally] trade at a premium rate relative to the spot price.

The futures price will always expire when it's placed at the same price as spot. This is one of the functions of how the futures markets work within the exchange.

Your futures contract will not receive funding like an XBTUSD position will, on one, this means that you won't incur any costs from it, but you'll need to ensure that you take this into consideration.

Take this scenario as an example:

Your futures contract has approximately one week before expiry and is currently $100 premium over spot. So you'll know that after that week, that spread will fall from the initial $100 to $0 when it expires. This is assuming that it doesn't expire before this time has elapsed.

Your strategy – XBTUSD will need to be held as a long game, while XBT will be held in a short position.

What you wait for? You wait for the futures price to return to parity with the XBTUSD (which it has to), once you close those positions, you're left with a solid profit. With the exception of any fees that are associated with withdrawing from those positions, specifically for XBTUSD.

3. Post Funding Blues

That funding turnover can be a truly exciting time to trade, and who can blame you? The funding rollover takes place every eight hours, as previously mentioned, and the instances of large funding, which is 0.05%, can make a serious difference to the market.

The Setup

When the funding release counts down to the last few minutes, you open an XBT futures position which pays in funding. Shortly after the event, once you've secured the uptick on your position thanks to the release, you close it out, ensuring that you've secured a profit from the release.

Theory

While the XBT futures contract doesn't receive funding from the event, it closely follows the XBTUSD when funding is released to that.

Within seconds of the funding being released, the XBTUSD steadily begins to move in the direction of those that paid funding, this is due to the fact that many investors will be closing their positions to capitalize on the rollover.

The fact that the XBT futures contract follows these positions closely means that you can indirectly benefit from the increase that XBTUSD. This means that you can actively benefit while not having to pay funding!

This window of time that investors have that want to use this strategy can be anywhere from 10 mins to an hour. This designates the time when positions move from paying, to earning funding.

The reason for this is everyone who opened a position to receive the funding instantly tries to close which moves the price in the opposite direction.

So, these are a few strategies that you can use to take advantage of the very unique dynamics of the Bitmex trading platform. But as previously mentioned, with these ideas come the fact that any investor seeking to apply them must make sure they do their research on these methods to make sure that they don't feel the biting edge of any of these systems.