Bybit margin trading

Margin Trading Bybit involves trading with borrowed funds (leverage). The trader invests less money to make more profit. The opportunity to earn more than you invest is accompanied by the risk to lose more than you have. The basic concepts of margin trading on the site bybit.com are “isolated” and “cross”.

Cross

Cross (cross margin) is a borrowed trading mode, which is set on the exchange by default. In this mode the client uses all available balance of a particular cryptocurrency in a trading pair. Therefore, if the balance of the trading pair falls below the supported margin (collateral amount) and the position is liquidated, the trader loses the entire balance in the pair. For example, if a client opens a position BTC/USDT and it is liquidated, the user loses all the USDT coins (but not the BTC balance).

 

In Bybit’s cross mode, the default leverage is set to x10. If you want to increase or decrease it, you need to select “cross” in the order area, select the loan size and enter the desired value or move the indicator bar to the desired value. The liquidation price (immediate cancellation of all open orders) in the crossed mode changes when the value of the balance, the value of the position, the price of entry into it and the risk limit change.

If the client places and holds one position and has no more active orders, the liquidation price does not change. If the trader holds a position and places orders, the liquidation price can change: when the leverage increases, the initial security of the active order decreases, additional margin is released, and the available balance, which can support the position, increases. If the leverage decreases, the opposite process occurs.

If the user holds multiple orders in the same asset, the change in leverage also affects the liquidation price. As the loan size of one position increases, the amount of collateral decreases and some of it is released to support other orders. As the leverage size decreases, the opposite process occurs. Leverage changes that decrease the available account balance increase liquidation risk.

Isolated

Isolated margin implies that the amount of order security is isolated from the trader’s balance. Therefore, when liquidating, the user risks only this amount and not all funds on the balance. Because on cryptocurrency exchange Bybit is set to “cross” mode by default, then on the isolated users need to go by clicking on the button, and then select the desired size of the leverage. The larger it is, the less margin is required to provide a specific position. It is important to remember that the selected size of the loan does not change after closing the order, so at the beginning of the next trading session it should be changed, if necessary.

 

Protection from the market

Liquidation is possible not only because of trader’s wrong actions, but also because of low liquidity and market manipulation. Bybit Exchange prevents losses in such cases by using mark-to-market prices. In this case the position is liquidated partially, which reduces the amount of supporting collateral and allows avoiding a full loss.

The liquidation mechanism reduces the level of risk by cancelling all active orders on the contract. This is an effective method that minimizes the level of risk limit by cancelling all open orders, but keeping the position open. Thus it is possible to avoid losses. A FillOrKill (execute or cancel) order may also be placed for the difference between the value of the order and the value of the margin requirements at this risk limit, which will also avoid a loss. But in all of these cases, the amount of supporting collateral may not decrease and liquidation occurs at bankruptcy value.

Risk limit

On the Bybit exchange, the risk limit is determined by the dynamic leverage: the higher the contract price, the lower the loan amount. Accordingly, as the value of the contract increases, the initial collateral requirement also increases. The percentage of increase is fixed: the prime rate for VTS is 0.5%, for ETH, EOS and XRP 1%.

The risk limits calculated by this method avoid losses, which may be too large if large contracts are traded with high leverage. Limit figures for specific cryptocurrencies can be clarified at this link. In the trading terminal, the risk values are changed in the upper right corner in “Settings”.

Nevertheless, it is difficult to completely avoid serious losses in the cryptocurrency market when trading actively. In case of losses due to position liquidation above the bankruptcy price, the exchange has an automatic leverage reduction system (ADL system), which is described in more detail at this link. Leveraged trading on Bybit Crypto Exchange allows you to trade at a profit and reduce the probability of loss, which is traditionally very high for this type of trading. But these methods also complicate the trading process and it takes a lot of time to master the methods offered on the crypto exchange.