How does Bybit leverage trading work? How can novices avoid the risk of liquidation?

Bybit's leverage trading lets you control larger positions with less capital, but novices should use lower leverage and set stop-loss orders to avoid liquidation risks.

May 07, 2025 at 09:21 pm

How does Bybit leverage trading work? How can novices avoid the risk of liquidation?

Leverage trading on Bybit allows traders to amplify their trading positions beyond their initial capital. This means that with a smaller amount of money, traders can control a larger position in the market. However, while leverage can significantly increase potential profits, it also increases the risk of substantial losses, including the risk of liquidation. In this article, we will explore how leverage trading works on Bybit and provide detailed guidance on how novices can avoid the risk of liquidation.

Understanding Leverage on Bybit

Leverage on Bybit refers to the ability to borrow funds from the platform to increase the size of a trading position. Bybit offers leverage up to 100x on certain trading pairs, which means that for every dollar of your own money, you can control up to 100 dollars worth of assets.

To start trading with leverage on Bybit, follow these steps:

• Log into your Bybit account and navigate to the trading section.
• Select the trading pair you wish to trade, such as BTC/USD.
• Choose the leverage level you want to use. This can be adjusted in the trading interface.
• Enter the amount you want to trade and place your order.

Once your position is open, any profits or losses will be magnified by the leverage you have chosen. For example, if you use 10x leverage and the market moves in your favor by 1%, your position will gain 10%. Conversely, if the market moves against you by 1%, your position will lose 10%.

The Mechanics of Liquidation on Bybit

Liquidation occurs when the value of your trading position falls below a certain threshold, known as the liquidation price. This threshold is determined by the amount of leverage you are using and the size of your position. When your position is liquidated, Bybit will automatically close your position to prevent further losses, and you may lose your entire initial margin.

To calculate the liquidation price, Bybit uses the following formula:

[ \text{Liquidation Price} = \frac{\text{Entry Price} \times (1 \pm \text{Maintenance Margin Rate}) - \text{Maintenance Margin}}{1 \pm \text{Maintenance Margin Rate}} ]

Where:

• Entry Price is the price at which you opened your position.
• Maintenance Margin Rate is the percentage of the position value that must be maintained to keep the position open.
• Maintenance Margin is the amount of margin required to keep the position open.

Strategies to Avoid Liquidation

To avoid the risk of liquidation, novices should consider the following strategies:

Use Lower Leverage

Using lower leverage can significantly reduce the risk of liquidation. While high leverage can lead to higher profits, it also increases the likelihood of liquidation. Novices should start with lower leverage, such as 5x or 10x, to gain experience and understand market movements better.

Set Stop-Loss Orders

Setting stop-loss orders is a crucial risk management tool. A stop-loss order automatically closes your position when the market reaches a certain price, limiting your potential losses. To set a stop-loss order on Bybit:

• Open the trading interface and select your active position.
• Click on the "Stop Loss" option and enter the price at which you want your position to be closed.
• Confirm the order to activate the stop-loss.

Monitor Your Positions Closely

Monitoring your positions closely is essential, especially when using leverage. Market conditions can change rapidly, and staying informed can help you make timely decisions to avoid liquidation. Use Bybit's trading tools and charts to keep an eye on your positions and the overall market.

Use Trailing Stop Orders

Trailing stop orders can help you lock in profits while minimizing the risk of liquidation. A trailing stop order moves with the market price, allowing you to capture gains while protecting against significant losses. To set a trailing stop order on Bybit:

• Open the trading interface and select your active position.
• Click on the "Trailing Stop" option and set the trailing percentage or amount.
• Confirm the order to activate the trailing stop.

Diversify Your Portfolio

Diversifying your portfolio can help spread the risk across different assets and reduce the impact of a single position being liquidated. Instead of putting all your capital into one trading pair, consider trading multiple pairs with different leverage levels.

Understanding Margin and Margin Calls

Margin is the amount of money you need to deposit to open a leveraged position. Bybit requires both an initial margin and a maintenance margin to keep your position open. If the value of your position falls and your margin balance drops below the maintenance margin, you will receive a margin call.

A margin call is a warning that your position is at risk of liquidation. To avoid liquidation after receiving a margin call, you can:

• Add more funds to your margin balance to meet the maintenance margin requirement.
• Reduce the size of your position to lower the required margin.
• Close your position to avoid further losses.

Practical Tips for Novices

For novices, it's important to approach leverage trading with caution and a solid understanding of the risks involved. Here are some practical tips to help you get started:

Start with a Demo Account

Using a demo account allows you to practice trading with virtual funds, helping you understand how leverage and liquidation work without risking real money. Bybit offers a demo account feature that you can use to gain experience.

Educate Yourself

Educating yourself about the cryptocurrency market and trading strategies is crucial. Read articles, watch tutorials, and join trading communities to learn from experienced traders. Understanding market trends and technical analysis can help you make informed trading decisions.

Start Small

Starting small with your initial trades can help you build confidence and experience. Begin with a small amount of capital and gradually increase your position size as you become more comfortable with the market.

Keep Emotions in Check

Keeping emotions in check is vital when trading with leverage. Fear and greed can lead to impulsive decisions that increase the risk of liquidation. Stick to your trading plan and avoid making decisions based on emotions.

Frequently Asked Questions

Q: Can I change the leverage level of an open position on Bybit?

A: No, once a position is opened, you cannot change the leverage level. You would need to close the position and open a new one with the desired leverage.

Q: What happens if I don't have enough funds to meet a margin call?

A: If you do not have enough funds to meet a margin call, your position will be liquidated automatically by Bybit to prevent further losses.

Q: Is there a fee for using leverage on Bybit?

A: Bybit charges a funding fee for leveraged positions, which is exchanged between long and short traders to keep the market balanced. The fee rate can vary and is displayed on the trading interface.

Q: Can I use leverage for all trading pairs on Bybit?

A: No, Bybit offers different leverage levels for different trading pairs. Some pairs may have higher leverage options than others, so it's important to check the specific leverage available for each pair before trading.