Bybit uses mark price to avoid liquidation caused by low liquidity or market manipulation.
Under isolated margin, when 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 isolated mode, it may happen that both positions get liquidated under extreme market movement since long and short positions are independent.
Under cross margin mode, when available balance decreases to 0 and position margin decreases to maintenance margin level, the position is liquidated. Please take note that when holding hedged positions of both long and short under cross margin mode, only the net long or net short position may be liquidated. A fully hedged position will not be liquidated.
Larger positions may raise the tiered margin requirement.
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
- Cancel all active orders of this contract;
- 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 margin tier
The liquidation engine will try to lower the margin tier to lower the margin requirement:
- Cancel all active orders on this contract while retaining the existing position to reduce the tiered margin;
- 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;
- If the position is still in liquidation, this position shall be taken over by the liquidation engine at the bankruptcy price.
Illustrated Example:
If Trader A holds a 1.5 M USDT long position value + 1M BTC long Active Order value, it will correspond to the third tier of the tiered margin system. When Mark Price reaches the liquidation price, the liquidation engine will take over the position.
Cancel all Active orders, followed by reducing the current tiered margin to the second tier at 2M USDT. In the process, this reduces the maintenance margin requirement and thus avoids liquidation by having a new liquidation price.
If Mark Price reaches the new liquidation price for the second time
a) The liquidation engine will attempt to partially close the 500K USDT portion of the existing 1.5M USDT position value in order to further reduce to the first tier of 1M USDT to avoid fully liquidation.
b) If the system forecast that executing step (a) stated above is still unable to prevent liquidation, the liquidation engine will take over the position and the whole position will be liquidated.
Lastly, at the lowest tiered margin, the entire position will directly be taken over by the liquidation engine to be liquidated and settled at its bankrupt price if Mark Price reaches the liquidation price again.