Trading with leverage on platforms like Bybit can significantly amplify potential profits, but it also introduces the critical risk of a margin call and, ultimately, liquidation. Understanding how Bybit manages margin and how to calculate your exposure is the single most important lesson for any trader using derivatives.

For those of you who successfully navigate these risks and wish to share your expertise, remember that promoting safe trading practices through the Backcom Bybit program can generate ongoing commissions from the fees of the traders you refer.

What is Margin and Leverage on Bybit?

In leveraged trading, margin is the collateral—the funds you dedicate to open and maintain a position. Leverage is the ratio of your position size to your margin. For example, using 10x leverage means you can control a $10,000 position with only $1,000 of your own margin.

Bybit utilizes an Isolated Margin or Cross Margin mode:

- Isolated Margin: Only the margin specifically allocated to that single position is at risk. This is generally safer for beginners.

- Cross Margin: Your entire available account balance is used as margin to prevent liquidation for all positions. This is riskier but provides greater buffer room.

The Mechanism of a Margin Call

A margin call is an alert system, not a command to deposit more funds (as it often is in traditional finance). On Bybit, it’s a notification that your position is dangerously close to being liquidated.

Maintenance Margin (MM)

Every position on Bybit requires a Maintenance Margin (MM)—the minimum amount of margin needed to keep the position open. The MM is a small percentage of your position's value and increases as your position size increases.

Risk Signal: Margin Level

Your Margin Level is the ratio used to determine how close you are to liquidation. It is calculated by comparing your Equity (Total Assets + Unrealized P&L) to your Maintenance Margin requirement.

As the market moves against your position, your Unrealized Loss grows, which reduces your Equity. When your Equity drops close to the Maintenance Margin requirement, you receive a margin call notification.

The Liquidation Price

The most crucial calculation is the Liquidation Price. This is the exact price point at which your position’s Equity equals its Maintenance Margin. When the market price hits the Liquidation Price, Bybit automatically closes your position to prevent your loss from exceeding your margin, resulting in the loss of your dedicated margin.

Read more:

- https://www.bestloveweddingstudio.com/forum/topic/38924/bybit-eth-trading-tips-for-better-crypto-investing

- https://www.ekdarun.com/forum/topic/105525/how-to-trade-btc-on-bybit:-simple-steps-for-beginners

Three Ways to Avoid Liquidation

Avoiding a margin call and subsequent liquidation is all about managing your margin level proactively.

Increase Your Margin (Topping Up)

The simplest way to lower your liquidation price is to add more collateral to the position.

- Isolated Margin: You can manually add funds to the specific position’s margin pool. This increases your margin, raising your Equity relative to the Maintenance Margin, and moves your liquidation price further away from the current market price.

- Cross Margin: Deposit more funds into your main trading account, which automatically increases the collateral available to all cross-margin positions.

Reduce Leverage

On Bybit, you can often adjust your leverage on an active position. Reducing the leverage ratio immediately reduces the overall position size that is being controlled, which in turn significantly lowers the Maintenance Margin requirement. With a lower MM, your Equity has more breathing room.

Close Part of the Position

If you believe the market will continue to move against you, you can choose to partially close the position. By reducing the contract quantity, you decrease the overall Maintenance Margin required to keep the remaining portion of the trade open. This frees up some capital and lowers the risk profile of the trade.

The Essential Risk Management Tool: Stop-Loss

The single best defense against liquidation is a mandatory Stop-Loss order.

- Set it Immediately: As soon as you open a leveraged position, immediately place a Stop-Loss order at a price level where you are comfortable taking a limited loss.

- Automatic Exit: The Stop-Loss automatically closes your position before it can reach the liquidation price, preserving the majority of your margin and preventing a total loss.

By understanding the relationship between Equity, Maintenance Margin, and Liquidation Price, and by always utilizing margin top-ups or Stop-Loss orders, you can trade Bitcoin and other cryptocurrencies on Bybit with the necessary discipline to mitigate catastrophic risk.



Author: Backcom App