Forced liquidation means that when the margin is insufficient to meet the maintenance margin level, your position will be forcibly liquidated, and you will lose all the position margin used for the position. When the marked price reaches the liquidation price, the forced liquidation will be triggered.
Liquidation price (margin by warehouse mode, traders can increase the position margin)
Initial Margin Rate (IMR) = 1/Leverage
The maintenance margin rate (MMR) is based on the tiered margin level.
Liquidation price = entry price × (1-initial margin rate + maintenance margin rate)-additional margin/number of contracts
The trader uses 50 times leverage to open a long position of 1 BTC at the price of 10,000 USDT, assuming that there is no additional manual deposit during the period
Liquidation price = 10,000 USDT × (1-2% + 0.5%) = 9,850 USDT
Liquidation price = entry price × (1 + initial margin rate-maintenance margin rate) + additional margin/number of contracts
The trader opened a short position of 1 BTC at a price of 8,000 USDT with a leverage of 40 times
Liquidation price = 8,000 USDT × (1 + 2.5%-0.5%) = 8,160 USDT
Liquidation price (wide margin mode)
Different from the warehouse-by-warehouse margin model, the liquidation price of the whole-warehouse margin may change at any time, because the available balance is always affected by other trading pairs. In the full margin mode, the initial margin of each position is independent, but the available balance is shared. The current outstanding profit of each position will affect the available balance. Liquidation will occur when the available balance is 0 and each position is not enough to maintain the margin.
Example 1 (only one position, no hedging)
In the full position mode, suppose that Trader A has a long position of 2 BTC and the entry price is 10,000 USDT. The current available balance is 2,000 USDT, the marked price is 10,500 USDT, and the unresolved profit and loss (calculated at the marked price) is 1,000 USDT.
Initial margin=2*10,000*1% = 200 USDT
Maintenance margin = 2 *10,000*0.5% = 100 USDT
Available balance = 2,000 USDT
Loss of position = available balance + initial margin-maintenance margin
= 2,000 USDT+200 USDT-100 USDT = 2,100 USDT
Calculated on the basis of 2,100 USDT, the price fluctuation that the position can withstand before liquidation is 1,050 USDT (2,100/2). So the liquidation price of this position is 9,450 (10,500-1050).
Therefore, the formula for liquidation price (LP) can be derived as:
Current Marked Price (MP)-Liquidation Price (LP) = [(Available Balance (AB) + Initial Margin (IM)-Maintenance Margin (MM)]/Net Position (NPS)
Long position liquidation price (LP) = MP-(AB+IM-MM)/NPS
Short position liquidation price (LP) = MP + (AB+IM-MM)/NPS
Example 2 (a hedged position)
In the full position mode, suppose that Trader B has a long position of 2 BTC and the opening price is 10,000 USDT. The current available balance is 3,000 USDT, the marked price is 9,500 USDT, and the unresolved profit and loss (calculated at the marked price) is 1,000 USDT. At the same time, he/she has a short position of 1 BTC with an opening price of 9,500 USDT.
The short position here will never be liquidated because the position size of the long position is larger than the position size of the short position. If the price rises, the outstanding profit of a long position will always be greater than the outstanding loss of a short position.
When calculating the liquidation price for long positions, we need to consider the net position (long position-short position) = 2 BTC-1 BTC = 1 BTC
IM = 1*10,000*1% = 100USDT
MM = 1*10,000*0.5% = 50USDT
AB = 3,000 USDT
Long position liquidation price (LP) = 9,500-(3,000+100-50)/1 = 6,450 USDT
Go to Bybit’s Official Website
Please check Bybit official website or contact the customer support with regard to the latest information and more accurate details.
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Comment by Justy
May 22, 2023
Educational program is quite big and also have webinars