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Margin Trading Overview

Margin trading allows a trader to open both long and short positions, and long/short more than his wallet balance. Both profit and loss will be accelerated if a trader takes more than 1x leverage. Margin refers to the wallet balance required to enter a leveraged position.

Leverage and Margin

Initial & Maintenance Margin

Initial margin refers to the margin required to open a position, determined by the position size and leverage. The Maintenance margin refers to the minimum amount required for holding a leveraged position and determines the specific price triggering position liquidation.

Initial Margin (IM)

  • Buy/Long order IM requirement: [Contract value*Min (Buy/Long limit order price, best ask price)]/Leverage. Order will reserve a two-way (fee to open + fee to close) taker fee of 0.075%. Actual trading fees will be calculated based on the nature of the order and the execution price.

  • Sell/Short order IM requirement: [Contract value*Max (Sell/Short limit order, best bid price)]/Leverage. Order will reserve a two-way (fee to open + fee to close) taker fee of 0.075%. Actual trading fees will be calculated based on the nature of the order and the execution price.

  • If an order does not increase the size of the existing position, no IM will be posted.

  • If a trader has a concurrent Buy and Sell position/order, the system will take Max [Buy order IM (X), Sell order IM (Y)] as the account IM. Assuming X=200, Y=150, then the account IM will be 200. If the trader places another sell order with order cost less than 50, no extra margin is required. However, if the additional sell order cost is 70, causing Y=220, then it will require additional 20 (220-200) margin to place the additional sell order.

Maintenance Margin (MM)

  • Maintenance Margin(MM) is calculated using the maintenance margin rate (MMR). The MM for each contract varies as it will increase as a result of the increase in the risk limit.

  • For all positions, the required maintenance margin is MMR * Contract Value. The taker fee for closing the position will also be included in the maintenance margin requirement. This is the minimum margin required to continue holding a position. Thus, if the margin available in the position is less than the maintenance margin, the position will be liquidated.

Isolated Margin & Cross Margin

Traders can choose to use either cross margin or isolated margin mode on Bybit.

Cross Margin

All available margin of the respective asset type can be drawn to prevent liquidation.

Isolated Margin

The maximum loss for a position under isolated margin mode is limited to the initial margin and extra margin (if any). If the position gets liquidated, no extra margin will be drawn to the position. Traders may manually append extra margin to an isolated position, which reduces the effective leverage, resulting in a better liquidation price. Once position leverage is adjusted, all the extra margin posted previously will be reset to 0.

Setting & Adjusting Isolated Margin

Cross margin mode is enabled by default. Traders can switch to isolated margin mode and set a desired leverage. The higher the leverage, the lower the margin required for this position.

Liquidation

Liquidation Process

Bybit uses fair price marking to avoid liquidation caused by low liquidity or market manipulation.
To open a larger position, traders may raise the risk limit to a higher tier. A higher risk limit requires higher margin.
When liquidation happens, Bybit uses partial liquidation to reduce the required maintenance margin to avoid full liquidation. The process of liquidation is as follows.

Traders under the lowest risk limit

  • All active orders of this contract will be canceled;

  • If it still doesn’t meet the maintenance margin requirement, that position will be closed at the bankruptcy price by the liquidation engine.

Traders under second or higher risk limit

The liquidation engine will try to lower the risk limit level of the trader to lower the margin requirement:

  • Maintain the current position and active orders unchanged,and reduce the risk limit of the trader directly if possible;

  • Cancel all active orders while retaining the existing position to reduce the risk limit;

  • Submit a FillOrKill order of the difference between the current position value and the risk limit value which satisfies the margin requirement, thus preventing further liquidation;

  • If the position is still in liquidation, all positions shall be taken over by the liquidation engine at the bankruptcy price.

Insurance Fund

If Bybit can close the liquidated position at a better value than the bankruptcy price, the residual margin will be added to Bybit's insurance fund.
If Bybit is unable to close the liquidated position at a better value than the bankruptcy price, the insurance fund will be drawn to absorb the loss. If the insurance fund is insufficient to cover the loss, Auto-Deleverage (ADL) will be triggered.
Bybit uses the insurance fund to prevent traders from auto-deleveraging.

ADL Mechanism

When a position gets liquidated, it will be taken over by the Bybit liquidation engine. If the liquidated position can not be closed at a better value than bankruptcy price, and the insurance fund is insufficient to cover the loss, ADL mechanism will deleverage the opposite position with the highest ADL ranking. ADL ranking is based on the effective leverage and PnL percentage.

ADL Ranking

Each position’s ADL ranking is indicated by ADL indicator. One light lit indicates a 20% increase in the ADL ranking priority.

ADL Ranking Calculation

ADL ranking is determined by PnL percentage and the effective leverage. High profit% and high leverage lead to high ADL ranking.

ADL Ranking = P&L Percentage × Effective Leverage (If P&L Percentage > 0)
ADL Ranking = P&L Percentage / Effective Leverage (If P&L Percentage < 0)
Effective Leverage = abs (Mark Value) / (Mark Value - Bankruptcy Value)
P&L Percentage = (Mark Value - Avg Entry Value) / (Avg Entry Value)
Mark Value = Position Value at Mark Price
Bankruptcy Value = Position Value at Bankruptcy Price
Avg Entry Value = Position Value at Average Entry Price

Risk Limit

Formula

New Maintenance Margin (MM)% = MM% Base value + (No. of increments * MM% incremental value
New Initial Margin (IM)% = IM% Base value + (No. of increments * IM% incremental value)
New Maintenance Margin Amount = New MM% * Total Position Value

For more details on Risk Limit, please click here.

Perpetual Contract Overview

A perpetual contract is a derivative product similar to futures. It differs from futures as

  • There is no expiry or settlement date.

  • A perpetual contract mimics a margin-based spot market. The trading price is anchored to the reference index price by the funding mechanism.

Trading Mechanism of Perpetual Contract

When trading a perpetual contract on Bybit, apart from the principle of margin trading, traders should be aware of:

  • Mark Price: Mark price is used to trigger liquidation.

  • Initial Margin and Maintenance Margin: Initial margin determines the leverage to be used, and the Maintenance Margin determines the liquidation price.

  • Funding: Funding fee is exchanged directly between buyers and sellers every 8 hours. When the funding rate is positive, long positions pay to short positions. When the funding rate is negative, short positions pay long positions. Traders will only pay or receive funding fee if they hold a position at funding timestamp.

  • Funding Timestamp: 00:00 UTC, 08:00 UTC and 16:00 UTC.

Funding Fee

Funding fee = Position value * Funding rate

Funding is determined by interest rate and price premium/discount. Funding ensures that Bybit's last traded price is anchored to the reference index price, where the funding fee is exchanged between buyer and seller.
Interest rate = (USD interest - Underlying asset interest) / Fund rate interval
Current daily USD interest is 0.06%, and 0.03% for underlying asset interest. Fund rate interval is 3 (once every 8 hours). The current interest rate is 0.01%.

Premium/Discount

Perpetual contracts may be traded at a premium or discount to the mark price. Premium/discount will affect the next funding rate.

Premium Index (P) = ( Max ( 0 , Impact bid price - Mark price) - Max ( 0 , Mark price - Impact ask price)) / Index price + Funding rate of current interval
Funding rate (F) = Premium index (P) + clamp (Interest rate (I) - Premium index (P), 0.05%, -0.05%)

The Funding Rate is determined by the 8-Hour Interest Rate and the 8-Hour Premium / Discount. A +/-0.05% dampener is added. Therefore, if (I - P) is within +/-0.05% then F = P + (I - P) = I. In other words, the Funding Rate will be equal to the Interest Rate. The funding rate calculated from 00:00-8:00 is exchanged at 16:00, the funding rate calculated from 8:00-16:00 is exchanged at 00:00 and the funding rate calculated from 16:00-00:00 is exchanged at 00:00.

Funding Rate Ceiling & Floor

Funding rate <= (Initial margin % of the first risk limit tier - Maintenance margin % of the first risk limit tier) * 75%
Funding rate >= (Maintenance margin % of the first risk limit tier - Initial margin % on of the first risk limit tier) * 75%

Fair Price Marking

Bybit uses fair price marking to prevent unnecessary liquidation caused by market manipulation or lack of liquidity. Liquidation is triggered by mark price

Mark Price = Index price * ( 1 + Funding basis)
Funding basis = Funding rate * (Time until funding / Funding interval)

Note: When an order is executed, there may be immediate unrealized profit/loss, since the last traded price may deviate temporarily from the market price. Please note that it doesn’t mean you have made or lost money.

Index Price

The index price represents the market consensus price of the underlying asset. It's derived from a weighted average of multiple spot exchange quotes, adjusted by data usability and weight adjustment factors. Test of data usability includes data’s timeliness and validity. The quoted price of reference exchanges that have passed the usability test will be weighted by an adjusted weight based on trading volume and price distance from the volume weighted average price.

Inverse Contract

Under inverse contract, margin, profit and loss are calculated and settled in underlying assets (such as BTC and ETH). To place an order, traders decide the order amount in USD.

Order Cost Calculation

Order cost is the margin required to open a position. Traders can review the order cost on “Order confirmation window” and “Order zone”. It is calculated as the initial margin plus a 2-way taker fee. The actual fee charged/received depends on if the order is executed as a taker trade or maker trade.

Order Cost = Initial margin + taker fee to open + taker fee to close

For more detailed example, please click here

P&L Calculation

P&L for long position = Quantity x (1/Average entry price - 1/Average exit price)
P&L for short position = Quantity x (1/Average exit price - 1/Average entry price)

For more detailed example, please click here

Limit Order

Limit order is used to specify the highest bid price / the lowest ask price a trader is willing to accept. Traders use this order type to minimize trading costs, while the order may not be executed if the order price is deep out of the market.

Three types of Time in Force options for limit orders:

  • GoodTillCancelled Order (GTC) shall remain in effect indefinitely until fully executed or cancelled.

  • FillOrKill Order (FOK) is an order that must be immediately filled entirely at the limit price or better. Otherwise, it will be totally cancelled. No partial fills are allowed.

  • ImmediateOrCancel Order (IOC) must be filled immediately at the limit price or better only. If the order cannot be filled immediately or fully, the unfilled portion will be cancelled.

Post-Only Order

Post-only order won’t be executed in the market as a taker trade, and thus will earn a maker rebate when executed. Post-only order will be automatically cancelled if it can be executed immediately against an existing order in the market.

Reduce-Only Order

Reduce-only order is used to reduce the size of a trader’s position and does not increase the size of position.

Market Order

Market order is intended for traders who wish to have their orders executed immediately. The order will be filled immediately at the best price available from the order book. A large market order may have market impact and increase trade cost.

Conditional Order

Conditional order is a limit order or a market order taking effect when a specific condition is met. Conditional order can be triggered by mark price, last traded price or index price.

Close On Trigger

Close on trigger can be selected to most take-profit or stop-loss orders. It is a priority order where if there is no sufficient margin for Close on trigger, other active orders will be changed or canceled. This order can only reduce a position, and gets cancelled automatically if it increases a position.

Take-Profit & Stop-Loss Orders

Take profit and stop-loss order is an exit strategy that traders place ahead on positions to ensure timely and automatic exit. Stop-loss order is used as a risk management tool to limit the loss of a position. Bybit offers the following three types of take-profit and stop-loss orders by default. Please click here for other settings of Take-Profit and Stop-Loss.

  • Take-Profit Market Order: Once price reaches take-profit price, a market order is placed immediately

  • Stop-Loss Market Order: Once the price reaches the stop-loss price, a market order is placed immediately

  • Trailing Stop-Loss Order: Once the trailing distance is set, when price reverts to reach the trailing distance, a marker order is placed immediately.

Triggering price can be market price, index price or last traded price.

TRADING FEE

Bybit may charge a trading fee when an order is executed.
The trading fee is incurred upon execution of an order. It is deducted from the wallet balance and won’t affect the initial margin of the order.
The trading fee is negative (-0.025%) for liquidity providers/makers (order enters the order book and increases market depth). In other words, traders receive trading fees as a rebate from the platform.
The trading fee is positive (0.075%) for liquidity consumers/takers (order executed immediately and reduces market depth). In other words, traders pay trading fees to the platform.

For a detailed example, please click here

ASSET EXCHANGE

Bybit introduces asset exchange for users to trade different types of contract. Market makers provide a fair exchange rate based on the index price. Bybit charges a fixed transaction fee to exchange assets.

For a detailed example, please click here