Bybit uses a partial liquidation process to reduce the risk limit and thereby reduce the maintenance margin requirements to avoid direct forced liquidation of all positions.

When the marked price reaches the liquidation price displayed in the position area, the liquidation system will take over the trader’s position.

1. After the liquidation engine takes over the position, the system will first determine the current risk limit.

Users who use the lowest risk limit

The liquidation engine takes over the position, cancels all unexecuted activity orders, and finally executes the liquidation at the bankruptcy price of the position.

Users who use high risk limits:

The liquidation engine will execute the following steps in order to reduce the user’s risk limit and reduce the maintenance margin requirement:

  • Maintaining all current active orders and positions when trying to reduce the user’s risk limit.
  • Cancel all uncompleted activity orders, try to reduce the user’s risk limit, but still retain the position.
  • Submit a FillOrKill (full execution or cancel immediately) order. The value of this order is equal to the difference between the current position value and the risk limit value that meets the current margin requirements, so as to avoid further liquidation.
  • If the position is still in liquidation, all positions will be taken over by the liquidation engine at the bankruptcy price.

2. When the liquidation is executed at the bankruptcy price, the following are possible scenarios

If the position can be executed in the market at a price higher than the bankruptcy price, the remaining margin will be added to the insurance fund.

If the position cannot be executed at a price higher than the bankruptcy price, the loss of the position will be compensated by the insurance fund. Finally, if the insurance fund is not enough to make up for the loss of short-term position, the forced liquidation position will be taken over by the automatic lightening system.

Example:

If Trader A holds 350BTC position value + 200BTC commission value, he is in the fourth gear of the 600BTC risk limit. When the marked price reaches the liquidation price, the liquidation engine will take over the position.

Cancel all activity commissions and reduce the trader’s risk limit to the third gear of 450 BTC, thereby reducing the maintenance margin ratio, avoiding being liquidated, and updating the liquidation price.

If the marked price reaches the liquidation price again

  • The liquidation engine will try to liquidate 50 BTC in the position value of 350 BTC to reduce the risk limit to the second level of 300 BTC to avoid liquidation.
  • If the system predicts (a) that the liquidation cannot be avoided directly after the execution, the liquidation engine will try to partially close the 200BTC position, reduce the risk limit to the lowest 150BTC gear, and then update according to the new minimum maintenance margin ratio New liquidation price.

Finally, in a position with the lowest risk limit, if the marked price reaches the liquidation price again, the liquidation engine will take over the entire position and execute the liquidation at the bankrupt price.

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