Fair and Orderly Markets: How We Changed Our Fair Pricing Parameters to Improve User Protection

If building and scaling a world-class crypto derivative exchange is the same as assembling an airplane in flight, strengthening the exchange parameters would be the pilot’s essential job , ensuring that the ride is as smooth as possible.

Over the years, we have developed BitMEX from A to Z, using our unique Fair Price Marking System for s ‘ensure that users are not unfairly affected by erroneous price movements.

This effort never stops, and in November and December 2020, we made some important updates – the introduction of the Hybrid Composite Index and parameter changes to our existing controls – to help reduce unnecessary Mark Price fluctuations for a better trading experience.

These changes have allowed us to more closely track the “true market price” of the underlying instruments, differentiating the BitMEX platform from its competitors with less sophisticated guarantees.

The trading period since the introduction of these changes has been among the busiest in recent memory, and the platform has performed exceptionally well . A few weeks later, it’s worth considering how the improvements we’ve made during this time protect our users and maintain fair and orderly markets.

Hybrid Composite Index – Diversity increasing

Generally speaking, the more reliable price sources we can add, the more accurately our index will track the actual market price of an asset. But what happens when we want to add more sources (constituents of the index) to make our index more robust? And what happens if there is a shortage of price sources – for example, with the recent delisting of XRP / USD pairs by some exchanges? The introduction of hybrid composite functionality is the answer.

This provided a solution to the challenge of maintaining our XRP product, allowing us identify XRP / USDT constituents to replace XRP / USD sources lost due to write-off. Using the composite we can now convert and combine the prices of the USDT underlyings with the remaining USD underlyings. This is a complex process with a simple result – allowing us to continue to offer the XRP / USD perpetual exchange product when many of our competitors could not.

We also use the Hybrid Composite Index to diversify our index components for other products, reduce dependence on individual price sources and make indices more robust and more resistant to outliers on a component of the index. The charts below show how this helps in a theoretical situation where we are able to add a fourth price source (Constituent D) to help smooth out the effects of extreme price movements on individual sites.

In our new hybrid composite index, where component B is subjected to a sudden deviation…

… The impact of the spread on the price of the index is reduced.

The hybrid composite index has many applications and makes our indices more robust thanks to diversity. But the price can still move unnecessarily on the voters themselves. This is where the next change comes in.

Index protection setting – Filtering outliers

The exchanges whose feeds we use to calculate our Mark Price are not immune to price spreads, so we have made a significant change to our Index protection setting to help protect our users from sudden and unrepresentative price fluctuations on them. The parameter works by filtering out extreme price movements where the price of a single location deviates from the median by more than a set percentage.

We have reduced the parameter by 25-10%, giving the platform greater sensitivity to detect erroneous price information while retaining information from real large price movements that can start on one exchange and follow others.

This means that if there is a deviation on a constituent exchange of more than 10%, the Mark Price on BitMEX will follow the correct price trend, reducing unnecessary closeouts. Here’s a theoretical example of this using sample components:

A sudden and mistaken fall in the price of Component A would have previously caused the Mark Price on BitMEX to drop. But after changing the index protection setting from 25 to 10%, the Mark Price is resilient…

… While maintaining the good price trend.

Notional impact – Respond only to true market movements

The latest change, a increase in Notional Impact , makes BitMEX futures more protected against market shocks caused, for example, by attempted market manipulation or temporary drops in liquidity. In illiquid markets, it is important to consider parameters other than the last price. Our Notional Impact filter takes into account the depth of the order book and reduces the impact that fast, low volume travel can have. By essentially doubling the scope of the backlog used to determine the % Fair Basis , we have made it much more difficult for an outlier order to change the price and trigger closeouts.

A theoretical example of this is also shown below.

When a sudden drop in liquidity widens the spread…

… The % Fair Basis is not updated under the new setting…

… Avoiding unnecessary movements of Mark Price.


These changes ultimately provide a fair and orderly business environment for users of BitMEX, building on the protections inherent in our unique fair price tagging system and reflect valuable feedback from the BitMEX community. We are committed to continuously improving our platform and will deploy additional measures as they are developed by our team. Until then, good trading.