Bybit uses marked prices to avoid forced liquidation due to insufficient liquidity or market manipulation.

In the position-by-position mode, when the position margin drops to the maintenance margin level, the position triggers liquidation. Please note that if a user holds a long and short two-way position at the same time in the position-by-position mode, the bilateral position exists independently and may be forced to be liquidated separately during extreme fluctuations.

In the full position mode, when the available balance drops to 0 and the position margin drops to the maintenance margin level, the position triggers liquidation. Please note that if a user holds a long and short bidirectional position at the same time in the full position mode, only the long and short bilateral net position may trigger a liquidation, and the locked part will not be affected.

Large positions may increase the tiered margin requirements to control the market impact caused by the liquidation risk of large positions.

If the liquidation is triggered, Bybit uses partial liquidation to try to reduce the maintenance margin requirements, avoid all positions being liquidated, and control user risks. The specific liquidation process is as follows: users of the lowest margin ladder

  • Cancel all unexecuted orders of this contract;
  • If the maintenance margin requirement has not been met at this time, the position is taken over by the liquidation engine at the bankruptcy price.

Users with positions in the second or above margin ladder

The liquidation engine will use the following methods to try to lower the user’s margin ladder, thereby reducing margin requirements:

  1. Cancel the uncompleted order of the contract, but keep the existing position to reduce the user’s margin ladder;
  2. 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 margin ladder value that meets the current margin requirements, so as to avoid further liquidation;
  3. If the position is still in liquidation, the position will be taken over by the liquidation engine at the bankruptcy price.

When the liquidation is executed at the bankrupt price, the following is what will happen.

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.

For Example:

If Trader A holds a BTCUSDT long position of 1.5 million USDT position value + 1 million USDT long position commission value, it is in the third-level ladder margin of 2.5 million. 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 ladder margin level to the second level of 2 million USDT, thereby reducing the maintenance margin ratio, avoiding liquidation, and updating the liquidation price.

If the marked price reaches the liquidation price again

  • The liquidation engine will attempt to partially close the 500,000USDT position value of the 1,500,000USDT position, and reduce the ladder margin level to the first level of 1 million USDT.
  • If the system predicts (a) that the liquidation cannot be avoided directly after the execution, the liquidation engine will directly take over the entire position.

Finally, in a position in the lowest margin ladder, 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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