How is Bybit's forced liquidation price calculated?

Understanding Forced Liquidation on Bybit

1. Bybit's forced liquidation mechanism activates when a trader’s margin balance falls below the maintenance margin required to sustain open positions. This typically occurs during high volatility or adverse price movements. The system automatically closes losing positions to prevent further losses that could impact the insurance fund.

2. Each contract type—whether inverse or linear—has a unique calculation structure based on denomination and leverage. The liquidation price is derived from several components including entry price, leverage level, position size, and fees associated with trading and funding.

3. Traders using higher leverage face earlier liquidation due to reduced buffer between entry and liquidation prices. For example, a 100x leveraged long position will have a much narrower safe price range compared to a 10x leveraged one.

4. The platform continuously monitors unrealized profit and loss (PNL) in real time. When the equity in a trader’s wallet equals the maintenance margin, the risk limit triggers liquidation protocols. At this point, the position enters the auto-deleveraging system if not fully absorbed by the insurance pool.

5. It's important to note that cross-margin and isolated margin modes affect liquidation differently. In cross mode, all available balance acts as collateral, delaying liquidation slightly, while isolated mode caps risk at a predefined amount, making liquidation more predictable but also more abrupt.

Key Variables in Liquidation Price Calculation

1. Entry price serves as the baseline for determining how far the market can move against a position before reaching critical levels. A long position becomes riskier as price drops toward the liquidation threshold; conversely, shorts are threatened by rising prices.

2. Maintenance margin consists of taker fee, funding rate cost, and a small percentage determined by contract specifications. This value is subtracted from available margin to establish the minimum equity needed to keep a position active.

p>3. Position size directly influences exposure. Larger positions require proportionally larger price moves to trigger liquidation, yet they consume more margin upfront, reducing flexibility under pressure.

4. Leverage multiplies both gains and risks. While it reduces initial capital requirements, it tightens the gap between current mark price and liquidation point. Bybit displays estimated liquidation prices dynamically on its interface based on these inputs.

5. Funding payments in perpetual contracts may accelerate liquidation if repeated negative funding erodes account equity over time, especially in prolonged sideways or unfavorable trends.

How Contract Types Influence Calculations

1. Linear contracts, denominated in stablecoins like USDT, offer simpler calculations where liquidation price scales uniformly with USD-based values. These are commonly used for altcoin pairs and provide consistent risk modeling across different assets.

2. Inverse contracts use cryptocurrency (e.g., BTC, ETH) as collateral and quote prices in fiat terms. Their nonlinear behavior means that liquidation distances vary depending on underlying asset valuation, introducing complexity in forecasting thresholds.

3. For inverse futures, the formula incorporates the reciprocal relationship between base currency and quote currency, meaning depreciation in the base coin increases margin consumption even without price movement in the traded pair.

4. Risk limits on inverse contracts allow users to adjust maximum exposure, which recalibrates maintenance margin and thus shifts the liquidation price. Higher risk limits demand more initial margin but delay forced closure.

5. Bybit provides built-in calculators within its trading interface to simulate liquidation scenarios under various conditions, helping traders visualize outcomes before placing orders.

Frequently Asked Questions

What happens after a position gets liquidated?After liquidation, the position is closed via the insurance fund or auto-deleveraging system. Any remaining equity beyond maintenance margin may be partially recovered, though extreme cases can lead to total loss of margin.

Can I receive a notification before liquidation occurs?Yes, Bybit offers liquidation warnings through email, SMS, and in-app alerts when positions approach dangerous margin levels. Users should enable these features and monitor their risk dashboard regularly.

Does partial liquidation exist on Bybit?No, Bybit applies full liquidation once the margin threshold is breached. The entire position is closed rather than reducing size incrementally.

How does the insurance fund prevent early liquidation?The insurance fund absorbs losses up to a certain extent, allowing positions to remain open slightly longer during flash crashes or spikes. However, if the fund lacks sufficient coverage, auto-deleveraging engages to settle outstanding obligations.