Liquidation refers to an event when the Mark Price reaches the liquidation price, and the position is closed at the Bankruptcy Price (0% margin price level). This also means that the Position Margin balance falls below the required Maintenance Margin level.

 

For example, suppose the Liquidation Price is 15,000 USDT and the current Mark Price is 20,000 USDT. When the Mark Price drops to 15,000 USDT, it means the Mark Price reaches the Liquidation Price, and the unrealized loss of the position has hit the maintenance margin level. Liquidation will be triggered. 

 

For more information on how to check the Mark Price, please refer here. 

Liquidation Price Calculation

(A) Isolated Margin Mode

The isolated margin mode depicts the margin placed into a position isolated from the trader's account balance. This mode allows traders to manage their risks accordingly as the maximum amount a trader would lose from liquidation is limited to the position margin placed for that open position.

Formulas

For Buy/Long:

Liquidation Price (Long) = Entry Price - [(Initial Margin - Maintenance Margin)/Position Size] - (Extra Margin Added/Position Size)

 

For Sell/Short:

Liquidation Price (Short) = Entry Price + [(Initial Margin - Maintenance Margin)/Position Size] + (Extra Margin Added/Position Size)

 

Notes: 

— Position Value = Contract Size × Entry Price

— Initial Margin (IM) = Position Value / leverage

— Maintenance Margin (MM) = (Position Value x MMR) - Maintenance Margin Deduction

— The Maintenance Margin Rate (MMR) is based on the risk limit tier. For more details please refer to Maintenance Margin (USDT Contracts).

Example 1 (Long):

Trader A placed a long entry of 1 BTC at 20,000 USDT with 50x leverage. Assuming the Maintenance Margin Rate (MMR) is 0.5% and no extra margin is added:

 

Initial Margin = 1 × 20,000 USDT / 50 = 400 USDT

Maintenance Margin = 1 × 20,000 x 0.5% - 0 = 100 USDT

LP = 20,000 USDT - (400 - 100) = 19,700 USDT

Example 2 (Short):

Trader B initially placed a short entry of 1 BTC at 20,000 USDT with 50x leverage. Subsequently, he manually added 3,000 USDT more to his position margin. The new Liquidation Price after the margin is added will be calculated as follows: 

 

Initial Margin = 1 × 20,000 USDT / 50 = 400 USDT

MMR = 0.5%

Maintenance Margin = 1 × 20,000 x 0.5% - 0 = 100 USDT

 

LP = [20,000 USDT + (400 - 100)] + (3000/1) = 23,300 USDT

Example 3 (Long, funding fee deducted from position margin)

Trader placed a long position of 1 BTC at 20,000 USDT with 50x leverage. The Initial Liquidation Price is 19,700 USDT (refer to Example 1 above). However, the trader has incurred 200 USDT in funding fees and he has insufficient available balance to cover the funding fees. 

 

When traders have insufficient available balance to cover the funding fees, the funding fees will be deducted from the position margin. Therefore, the decrease in position margin will then move the Liquidation Price nearer to the Mark Price, making the position more prone to be liquidated.

 

The new liquidation price due to the reduction in position margin is now calculated as followed:

 

Initial Margin = 1 × 20,000 USDT / 50 = 400 USDT

MMR = 0.5%

Maintenance Margin = 1 × 20,000 x 0.5% - 0 = 100 USDT

 

LP = [20,000 - (400 - 100)] - (- 200/1) = 19,900 USDT

(B) Cross Margin Mode

Compared to the Isolated Margin mode, the Liquidation Price under the Cross Margin mode might keep changing as the available balance will be affected by the other trading pairs. Under Cross Margin mode, the initial margin used for each position is isolated from the account balance but the remaining balance is shared. The available balance will be affected by the unrealized PnL that occurred in all existing positions. Liquidation only happens when there is no available balance and the position does not have enough maintenance margin to maintain the position. 

Illustration 1 (not accounting for fees)

Under Cross Margin, assuming Trader A wants to open a 2 BTC long position at 10,000 USDT with 100x leverage. The current available balance is 2,000 USDT. 

 

Maintenance Margin = Maintenance Margin Rate x Order Value

 = 2 × 10,000 × 0.5% = 100 USDT

 

To calculate the maintenance (liquidation) price level, we need to see what his current sustainable loss is. 

 

The Total Sustainable Loss = Available Balance - Maintenance Margin                                    

                                      = 2,000 - 100

 = 1,900 USDT 

 

With 1,900 USDT, the position can sustain a price loss of 950 USDT (1,900/2). Therefore, the liquidation price of this position would be 9,050 USDT (10,000 - 950). 

 

Trader A accepts this risk level and opens the position. The initial margin of 200 USDT will be occupied from his available balance to open the position.  

 

Initial Margin  = Contract Quantity x Entry Price / Leverage

= (2 × 10,000) / 100 = 200 USDT

Available Balance = 1,800 USDT

Illustration 2 

After some time, the price increases to 10,500 USDT, and Trader A’s position is at an unrealized profit of 1,000 USDT (500 × 2). 

 

Total Sustainable Loss = Available Balance + Initial Margin - Maintenance Margin + Unrealized Profit

                                         = 1,800 + 200 - 100 + 1,000

                                         = 2,900 USDT

 

With 2,900 USDT, the position can sustain a price loss of 1,450 USDT (2,900/2). The liquidation price of this position would be 9,050 USDT (10,500 - 1,450). 

Using the above logic, we can derive the liquidation price formula as below. 

 

Formula

Position with unrealized profit

LP (Long) = [Entry Price - (Available Balance + Initial Margin - Maintenance Margin)]/Net Position Size

LP (Short) = [Entry Price + (Available Balance + Initial Margin - Maintenance Margin)]/Net Position Size

Position with an unrealized loss

LP (Long) = [Current Mark Price - (Available Balance + Initial Margin - Maintenance Margin)]/Net Position Size

LP (Short) = [Current Mark Price + (Available Balance + Initial Margin - Maintenance Margin)]/Net Position Size

 

Note: Minor difference from the actual liquidation price may arise due to the fees to close the position(s).

Below are some examples of liquidation price calculation under the Cross Margin mode (not accounting for fees).

 

Example 1 (Perfectly hedge)

A Perfect hedge will only be formed under the same symbol with the same contract quantity in Cross Margin mode. For example, a trader holds 1 BTC of BTCUSDT long position and 1 BTC of BTCUSDT short position under Cross Margin mode.

 

A perfectly hedged position will never be liquidated as the unrealized profit for one position will be used to compensate for the unrealized loss of the other position.

Example 2 (Partially hedged position) 

Assuming Trader B is holding two positions using the leverage of 100x as follows and the current available balance is 3,000 USDT. The current mark price is 9,500 USDT.

 

 

The short position will never be liquidated as the contract size of the long position is larger than that of the short position. Whenever the price increases, the unrealized profit for the long position is always greater than the unrealized loss for the short position.

 

For the long position, we only need to consider the net exposure of the position abs(Long - Short) = abs(2 BTC - 1 BTC) = 1 BTC when calculating the liquidation price. 

 

Initial Margin = (1 × 10,000 )/100 = 100 USDT

Maintenance Margin = 1 × 10,000 × 0.5% = 50 USDT

Available Balance = 3,000 USDT

LP (Long) = [9,500 - (3,000 + 100 - 50)]/1 = 6,450 USDT

 

Note: Under Cross Margin mode, the unrealized loss will reduce the available balance. Unrealized profit will have no effect on the available balance as Bybit does not support unrealized profit to open new orders, withdraw or compensate any unrealized loss for an unhedged position. 

Example 3 (positions across different symbols)

Trader C currently holds the two positions below and the available balance is now 2,500 USDT.

 

 

For BTCUSDT position,

LP = 19,500 - (2,500+200-100)/1 = 16,900 USDT

 

For ETHUSDT position,
LP = 2,000 +  (2,500 + 400 - 100)/10 = 2,280 USDT

 

Assuming that Trader C has opened another BITUSDT Short Position. The position details are as follows:

 

 

New Available Balance = 2,500 - 500 (extra unrealized loss from BTCUSDT long position) - 240 USDT (initial margin for BITUSDT) = 1,700 USDT

 

The new liquidation price for each position is calculated as follows:

For BTCUSDT long position,

LP = 19,000 - (1,700 + 200 -100)/1 = 17,200 USDT

 

For BITUSDT position,

LP = 0.6 + (1,700 + 240 - 60)/10,000 = 0.788 USDT

 

For ETHUSDT position,
LP = 2,000 +  (1,700 + 400 - 100)/10 = 2,200 USDT

 

 

Based on the examples above, we can understand that when multiple positions are using the same asset (USDT) as margin under cross margin mode, the liquidation price of the profitable position will move closer to the Mark Price every time the unrealized loss of the losing position increases. This happens because the shared available balance is reduced after being used to cover the unrealized losses of the losing position. The unrealized profit will not increase the available balance as mentioned in Example 2.

 

When the available balance reaches 0, the Liquidation Price of both positions will not change any further as what is supporting the position now is the initial margin of the position, which is not shared between the positions.

 

The only exception is when there are funding fee deductions to the initial margin of position. This will only occur when the available balance is 0, and any further funding fee deductions will reduce the initial margin of the position. When this happens, the Liquidation Price of the position will be recalculated and moved closer to the Mark Price.