Hey - Sam here, CTO of BitMEX. We aren't a spot market, we are derivatives only. So if you are shorting Bitcoin futures, someone else is going long on Bitcoin

Hey - Sam here, CTO of BitMEX. We aren't a spot market, we are derivatives only. So if you are shorting Bitcoin futures, someone else is going long on Bitcoin futures; you never take a position against the exchange itself. Therefore all contracts are verified by the central counterparty; us. There is risk involved for the exchange when you offer leverage, which is why we offer sane leverage (3.3x to 5x, not 10-20x like our Chinese competitors). There are a few schools of thought for managing this risk. Our competitors simply do their best to liquidate users when their equity gets too low. This is tough to do without loss; on 20x leverage, a 5% move will wipe out all value in an account. Bitcoin moves by more than 5% in a day very regularly. These exchanges simply take the loss and spread it out among all their customers. The customers that have made money on a given (weekly,monthly,quarterly) settlement simply have their winnings deducted by the amount of money the exchange has lost. This method is great for gamblers and unscrupulous investors, but in the end it is not much more than a slot machine. It is utterly useless for businesses; you can't properly hedge if your profits can be docked at any time because other users have gone bankrupt. Our view at BitMEX is that Bitcoin needs a proper derivatives market so businesses can hedge. Most Bitcoin companies simply sell at spot exchanges to hedge risk, but this has significant downsides. We manage our risk through limited leverage, limits on price movement, and with an advanced liquidation engine that can incrementally liquidate positions in a safe way to prevent major price movements. Our competitors simply place a market order for the full position's value, which leads to the dreaded "margin call cascade" (of course, "margin call" is the wrong word here, but on most Bitcoin exchanges there is no distinction between "margin call" and "liquidation"). These and other unique buffers give us the ability to guarantee settlements.