Today, we announced that we are changing the Lot Size, or minimum trading unit, on our popular XBTUSD Swap and XBT futures (XBTM21 and XBTU21) from 1 contract to 100 contracts, effective 04:30 UTC on 8 June 2021.
We expect a 10-second pause in trading starting at 04:30 UTC on 8 June 2021 to apply the Lot Size change. For traders needing a deeper dive into why we’ve decided to make this change, this one’s for you.
The Technicalities
The rise in the Bitcoin price over the past few years has had a couple of unintended consequences on trading inverse contracts with a Lot Size of 1.
First, under the current setup, when trading XBTUSD, not every USD price you can trade at will result in a distinct XBT value. This means that in some instances if you were to execute two trades at different USD prices, by the time the trade is settled into your account, the value you pay in Bitcoin terms would be the same.
Our products are settled in Bitcoin at the time of each trade, meaning once a trade is executed, we either debit or credit your account with a Bitcoin value. Each Bitcoin is subdivided into Satoshis. As there are 100,000,000 Satoshis in a Bitcoin, each Bitcoin can have up to 8-decimal places of precision (i.e. 1 Satoshi is 0.00000001 Bitcoin).
However, as our contracts have a $0.50 tick-size, that means that at prices over about $10,000 per Bitcoin, the value in XBT can sometimes need more than 8 decimal places to be represented properly. As you can’t have half a Satoshi, the value credited or debited to your account for each Lot needs to be rounded to the nearest Satoshi: 8 decimal places.
Here’s a real example: at a price of 50,000 and a Lot Size of 1, a trade would result in an XBT price of 0.00002 (i.e. 1/50000) – no rounding necessary as that’s 2,000 Satoshis. A second execution at a price of 50,000.5 would result in an XBT price of 0.0000199998 (i.e. 1/50000.5), which is 1,999.98 Satoshis. As there’s no such thing as 0.98 Satoshis, that value is rounded to 0.00002 – the same value. If a trader bought at the first price and sold 50 cents higher, they would make no money in Bitcoin terms.
By introducing a Lot Size of 100 contracts, we can now round the Bitcoin price to 8 decimal places and still result in a different Settlement Price for our smallest price increment. The trade above would yield a 2 Satoshi difference (i.e. 100/50000.5 – 100/50000).
In addition, due to the rounding, the next price point that results in a different Settlement Price is 50,012.5 and the previous is 49,988. This means the effective tick size is $24.5 (~5bps). After the change, the tick size will drop back to $0.50 (0.1bps), allowing traders to profit from far smaller moves in prices.
Further examples are outlined below.
As the example here shows, with a Lot Size of 1, changes in the price don’t always result in changes to the XBT Settlement Price. Increasing the Lot Size to 100 contracts solves this issue.
|
Price |
1 Lot Settlement Price (XBT) |
100 Lot Settlement Price (XBT) |
|
49987.5 |
0.00002001 |
0.0020005 |
|
49988 |
0.00002 |
0.00200048 |
|
49988.5 |
0.00002 |
0.00200046 |
|
50000 |
0.00002 |
0.002 |
|
50000.5 |
0.00002 |
0.00199998 |
|
50012.5 |
0.00002 |
0.0019995 |
|
50013 |
0.00001999 |
0.00199948 |
Also, the price jump between consecutive XBT values has become too big. Take the example below. When XBT is ~US$57k, the tick size is 0.0009% (0.5 / 57,000) but due to the inverse nature of the contract, the effective tick size is a 0.057% change in XBT. A Lot Size of 100 changes this, making the effective tick size 0.0011%. This is an improvement because when these two values better reflect each other, trading XBT inverse contracts is more intuitive and certain trading strategies become easier to implement.
Here’s an example of what trading looks like now with a Lot Size of 1. Notice the gap between % difference in Contract Price and % difference in value:
|
Contract Price |
1 contract value in XBT |
100 contracts value in XBT |
% Diff in Contract Price |
% Diff in Value |
|
57028.5 |
0.00001754 |
0.00175400 |
||
|
57029.0 |
0.00001753 |
0.00175300 |
0.0009% |
0.0570% |
Things change for the better when we have a Lot Size of 100, because the % difference in Contract Price is much closer to the % difference in value.
|
Contract Price |
100 contracts value in XBT |
% Diff in Contract Price |
% Diff in Value |
|
|
57028.5 |
0.00175351 |
|||
|
57029.0 |
0.00175349 |
0.0009% |
0.0011% |
|
Below, we’ve included some of the questions we think you might have about the change. Should you have any additional questions, please contact Support and we’ll be happy to help. .
Frequently Asked Questions
What are the changes and timeline again?
We are updating the Lot Size on three contracts, at 04:30 UTC on 8 June 2021.
Impacted contracts with changes are:
|
Contract |
Current Lot Size |
Updated Lot Size |
|
XBTUSD |
1 |
100 |
|
XBTM21 |
1 |
100 |
|
XBTU21 |
1 |
100 |
What is Lot Size and what exactly does it entail?
Lot size is defined as the minimum trading unit (in a number of contracts). A Lot Size of 100 is common on traditional marketplaces like the CME or Singapore Exchange, and has similar implementation on some of the largest crypto exchanges’ products.
What will happen to traders’ positions and open orders during the change of Lot Size?
For open positions:
- We expect a 10-second pause in trading starting at 04:30 UTC on 8 June 2021 to apply the Lot Size change.
- No liquidations will happen during the change of Lot Size.
- Open positions with odd lot position size (i.e. not in multiples of 100) will be partially traded out so that the final position size will be a multiple of the nearest lower Lot Size;
- The difference is traded out against Mark Price (e.g. a user with an open position of 135 contracts of XBTUSD Swap will have a final position of 100 contracts because the excess 35 contracts will be traded out at Mark Price).
- No fee is charged on positions that need to be traded out as a result of the change;
- Users’ avgEntryPrice will be updated.
For open orders:
- As stated above, we expect a 10-second pause in trading starting at 04:30 UTC on 8 June 2021 to apply the Lot Size change.
- New orders or amendments submitted during the change will be queued for when the Lot Size change is completed, together with any cancellations. To avoid unexpected filled levels after the release finishes, please don’t send in new orders or amendments during the release.
- Open orders for contract sizes smaller than 100 will be canceled, while open orders for contracts greater than 100 will be automatically rounded down to the nearest Round Lot. If you have advanced order types – like Hidden orders – with a displayQty in odd lot, they will also be canceled.
- Partially filled orders’ remaining quantity will be amended down.
What will happen to new orders after the change of Lot Size?
After the change, new orders that are not in multiples of Lot Size (i.e. 100) will be rejected, and the order value calculation will be updated to account for the new Lot Size.
Will I be able to test out the new Lot Size by myself?
Yes, the change will be released to Testnet at 04:30 UTC on 31 May 2021. Users’ positions and orders on Testnet will follow the changes described above and new Lot Size will be effective on the affected products for users to test with.
I have further questions – how do I get help?
We understand, and encourage you to get in touch with us via our Support team – we’ll be glad to help further.
Related
The post appeared first on Blog BitMex
