Difference between Bybit leverage and contract

Understanding the nuances between Bybit leverage trading, which magnifies market exposure, and contract trading, which utilizes perpetual contracts settled in stablecoins, is crucial for optimizing trading strategies and minimizing risk.

Nov 16, 2024 at 09:04 pm

Understanding the Difference between Bybit Leverage and Contracts

The realm of cryptocurrency trading presents traders with a multitude of platforms and instruments to navigate. Bybit, a renowned exchange in the blockchain space, offers both leverage and contract trading options. However, it's crucial to comprehend the fundamental differences between these two trading strategies to make informed decisions and optimize your trading strategy.

What is Leverage in Bybit Trading?

• Leverage is a trading mechanism that enables traders to amplify their market exposure beyond their initial capital.
• Bybit provides leverage ratios ranging from 1:2 to 1:100, allowing traders to multiply their potential profit (and loss) within these bounds.
• Traders must exercise caution when employing leverage, as it magnifies both potential gains and losses proportionately.
• For instance, if a trader applies 10:1 leverage with a $1,000 account balance, they can trade with a notional value of up to $10,000.

What are Bybit Contracts?

• Bybit contracts are perpetual contracts that track the underlying price of cryptocurrencies but are settled in Tether (USDT) or other stablecoins.
• Unlike futures contracts, which have predetermined expiration dates, perpetual contracts allow traders to maintain their positions indefinitely.
• These contracts provide flexibility and leverage options, similar to traditional margin trading.

Key Differences between Bybit Leverage and Contracts

1. Underlying Asset:

   • Leverage trading involves trading directly on the spot market, utilizing your own capital.
   • Contract trading entails trading perpetual contracts that track the underlying asset's price.

2. Settlement:

   • Leverage trades are settled directly in the underlying cryptocurrency.
   • Contract trades are settled in USDT or other stablecoins.

3. Duration:

   • Leverage trades can be held indefinitely, subject to margin requirements.
   • Contracts have no predetermined expiration date, providing ongoing market exposure.

4. Liquidity:

   • Leverage trading typically has higher liquidity compared to contract trading.
   • Contracts may experience lower liquidity during periods of high volatility.

5. Fees:

   • Leverage trading typically incurs lower fees than contract trading.
   • Contract trading involves both trading fees and funding fees. Funding fees adjust periodically to ensure equilibrium between long and short positions.

6. Leverage Ratio:

   • Bybit offers leverage ratios ranging from 1:2 to 1:100 for leverage trading.
   • Contract trading offers customized leverage options, typically ranging from 1:1 to 1:100.

7. Margin Requirements:

   • Leverage trading requires traders to maintain sufficient margin in their accounts to cover potential losses.
   • Contract trading also involves margin requirements, but margin calls occur less frequently due to ongoing trade settlement in stablecoins.