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    Liquidation Process (USDC Perpetual & Futures)
    bybit2024-04-07 09:17:27

    For USDC Perpetual and Futures, there are three margin modes supported and the liquidation process differs according to different margin modes: Isolated Margin (only applicable to Unified Trading Account), Cross Margin, and Portfolio Margin.

     

     

    Isolated Margin (only applicable to Unified Trading Account)

    Currently, only the account that has been upgraded to Unified Trading Account supports USDC Perpetual & Futures contract in isolated mode.

    In Isolated Margin mode, the liquidation is triggered when the Mark Price reached the Liquidation Price. When the position margin decreases to the maintenance margin level, the position is liquidated. Please take note that if a trader holds long and short positions simultaneously under the isolated mode, it may happen that both positions get liquidated under extreme market movement since long and short positions are independent. 

    When liquidation happens, Bybit uses partial liquidation to reduce the required maintenance margin to avoid full liquidation. The liquidation process is as follows.

     

    Traders under the lowest margin tier

    1. Cancel all active orders of this contract;

    2. 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 the second or higher margin tier 

    1. The liquidation engine will try to lower the margin tier  to lower the margin requirement: 

    2. Cancel all active orders on this contract while retaining the existing position to reduce the margin;

    3. Submit a FillOrKill order of the difference between the current position value and the lower margin tier value which satisfies the margin requirement, thus preventing further liquidation;

    4. If the position is still in liquidation, this position shall be taken over by the liquidation engine at the bankruptcy price.




     

    Under Cross Margin and Portfolio Margin mode, the account maintenance margin (MM) is a key indicator for evaluating the risk level of your account. Liquidation will be triggered when the account MM rate hits 100%. Within the two margin modes, the parameters that affect account MM are also different. The calculation formula is as follows:

     

    Cross Margin
    Account MM Rate = Maintenance Margin / Margin Balance

     

    Portfolio Margin
    Account MM Rate = Maintenance Margin / Equity
    Equity = Margin Balance + Option Market Value

     

    Please note that USDC Futures Contract is only available in Unified Trading Account (UTA). To learn more about the liquidation process under UTA mode, please visit here

     

    Note: 

    — A liquidation price is provided for trader to better understand the existing position risk. Please note that it is for reference only and traders are advised to use the account maintenance margin (MM) and account initial margin (IM) to evaluate the account risk.

     


     

    Cross Margin 

    Cross margin is based mainly on Margin Balance, IM and MM, and it determines an account’s risk of being liquidated.

    Traders can set their preferred leverage in the order zone. They can lower the leverage and increase the margin to reduce the risk of forced closing of positions.

    When liquidation occurs, Bybit uses partial liquidation to reduce the required MM to avoid full liquidation. The liquidation process is as follows:



     

    Positions with Tier 1 Margin
    1. All orders to open new positions in the account will be canceled. This includes orders that will increase the current position size or orders that will open a position in the opposite direction after execution.
    2. If the account MM rate still hits 100%, laddered liquidation will take place for the USDC Perpetual position. An attempt will be made to liquidate the position gradually first to release the margin and reduce the MM rate to a level required to maintain the position.
    In the event of liquidation, position will be settled at bankruptcy price and taker fee rate will be charged. If the position is closed at a price worse than the bankruptcy price, Bybit will use the balance of the insurance fund to cover the deficit. If the position is closed at a price better than the bankruptcy price, it will be contributed to the insurance pool. 



     

    Positions with Tier 2 or higher margin
    Bybit will try to lower the margin tier to reduce the required margin. The liquidation process is as follows:
    1. All orders to open new positions in the account will be canceled. This includes orders that will increase the current position size or orders that will open a position in the opposite direction after execution.
    2. Close the partial position by submitting Fill-Or-Kill orders to meet the minimum margin requirement, thus preventing further liquidation.
    3. If the account MM rate still hits 100%, continue to lower the risk limit tier of the position to where the margin is sufficient to sustain the position.

     

    Example:
    Let’s assume that Trader A holds a long position value of 1,500,000 USDC, and also places limit orders with a position value of 1,000,000 USDC. The risk limit of the BTCUSDC contract is at Tier 3.

    When the account MM rate reaches 100%, a liquidation is triggered. Under cross margin, the liquidation process is as follows:

    1. Cancel all orders with a position value of 1,000,000 USDC, and lower the current risk limit from Tier 3 to Tier 2. This reduces the maintenance margin requirement, and thus avoids liquidation by lowering the proportion of account MM.


    If the account MM still hits 100%:

    a. For the existing 1,500,000 USDC position value, the liquidation engine will attempt to partially close the 500,000 USDC and reduce the risk limit to the lowest level in order to prevent full liquidation.

    b. If the system calculates that executing step (a.) above the position still has high levels of risk exposure (MM rate over 160%), the liquidation engine will take over the position and the entire position will be liquidated.

    If the positions are at the lowest margin limit and the account MM rate still hits 100%, the liquidation engine will continue to liquidate the position at market prices to reduce the MM rate required to maintain the position.


    Note:
    — In USDC perpetual contract trading, only the one-way mode is supported. Users can hold either a long or short position in a contract.

     



    Portfolio Margin
    Portfolio margin is based mainly on Equity, Initial Margin and Maintenance Margin to determine the risk of an account being liquidated.

    USDC perpetual contracts don’t support adjustment of leverage under portfolio margin. Once a liquidation occurs, there is no process of reducing the risk limit and partially closing the position. The liquidation process is as follows:

    1. All active orders in the account will be canceled.

    2. If the account MM rate still hits 100%, the laddered liquidation system will compute the cost of closing the position and square off the position accordingly to lower the MM rate.

    In the event of liquidation, position will be settled at bankruptcy price and taker fee rate will be charged. If the position is closed at a price worse than the bankruptcy price, Bybit will use the balance of the insurance fund to cover the deficit. If the position is closed at a price better than the bankruptcy price,  it will be contributed to the insurance pool


     

    Revisiting Trader A’s case:
    Let’s assume that Trader A holds a long position value of 1,500,000 USDC, and also places limit orders with a position value of 1,000,000 USDC. 

    When the account MM rate reaches 100%, a liquidation is triggered. Under portfolio margin, the liquidation process is as follows:

    1. Cancel all orders with a position value of 1,000,000 USDC.

    If the account MM rate still hits 100%:

    2. The laddered liquidation system will compute the cost of closing the long position value of 1,500,000 USDC and square off the position accordingly to lower the MM rate.

    If the system deems that the position still has high levels of risk exposure (MM rate over 160%), the liquidation engine will take over the position and the entire position will be liquidated.

     

    Note:
     — In the portfolio margin, the risk limit is based on the entire USDC Derivatives account.

     

    If there are options, or if you’re holding both perpetual contracts and options in the account, please refer to Liquidation Process (Options) for the relevant liquidation process. 

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