As a new crypto trader, you need to know the details of Bybit liquidation before you begin using the exchange. Bybit is undoubtedly one of the largest and best crypto trading platforms in the market. It is known for its technologically advanced features and services.
However, if you are a new crypto trader, you should not simply choose an exchange because of its popularity. You should also know about terms such as liquidation and more.
Liquidation is one of the most crucial concepts crypto traders should know about before they start trading. Unfamiliarity with such concepts can make the overall experience difficult and even financially damaging.
Therefore, if you are new to the crypto space and this exchange is a good option for you in terms of trading then make sure you know the details of liquidation price Bybit and more as seen below.
What is Bybit Liquidation?
Liquidation can be one of the most damaging things for a crypto trader. It is basically the closing of a trader’s position, which is caused when all or almost all of the trader’s initial margin is lost.
The complete or close to complete loss of the initial margin can be caused due to the leverage a trader opts for. Another reason for liquidation can be if the trading position is opened with a contract where the price is derived from an asset and not the asset itself.
Before you explore liquidation price Bybit, it is important that you know about the two types of liquidations mentioned below.
Partial Liquidation
This type of liquidation works in favor of the crypto exchange being used by the trader. This is where the position of a trader is closed partially early on before more leverage is used by the trader and the exchange is compromised.
In other words, partial liquidation is a type of Bybit liquidation that works to limit the risks for the platform that can occur while the trader waits for potential profits.
Total Liquidation
Unlike partial liquidation, this type of liquidation works more in favor of the crypto traders. The total liquidation is a type where the position of a trader is completely close only when all or nearly all of the initial margin of a trader is used.
This is implemented by trading platforms to make sure that any profits made by the traders are not taken away.
What to Know About Liquidation Price and More?
Liquidation price is a crucial factor that plays a key role in the liquidation that occurs on the platform. One important term to know about is the Mark Price.
The Mark Price is also called Spot Price. It is the average price that is calculated by taking under consideration prices from several cryptocurrency exchanges.
Bybit liquidation occurs when the Mark Price hits the liquidation price. This means that the last traded price is not taken as a trigger to liquidate the position. However, when liquidation of a position does occur, it is used to calculate the price at which the position closes.
Since the prices of digital assets are volatile and market cap in exchanges is small they can be easily manipulated. The dual liquidation price Bybit mechanism is implemented to prevent any kind of market manipulations.
Initial Margin
Initial margin is one of the key terms you need to know if you are learning everything about Bybit liquidation. As mentioned above, the loss of all or nearly all of the initial margin can cause liquidation of a trader’s position. What is initial margin?
It is the amount a trader uses from their available margin to open a position while also implementing the leverage they selected.
Let’s suppose as a trader you want to open a position of $1,000 and the leverage you choose for your initial margin is 10x. This means that as a trader you will only be required to use $100 from your funds.
Maintenance Margin
Maintenance margin is yet another concept to know if you are learning about liquidation price Bybit and more. The maintenance margin is the minimum margin value that is required to keep a trading position open.
How to Avoid Liquidation?
Once you know what Bybit liquidation is you can move towards learning exit strategies that can help you avoid it.
There are three exit strategies used on Bybit that are mentioned below, along with some of their details. These strategies help traders close a position in time when a certain price condition is met to avoid further financial loss.
- Take-Profit – needs to be set at a better price than the entry-price. This is implemented to close at a position that gets you some profit as well.
- Trailing-Stop – it lock your profits and limits the losses, which is why it needs to be set at a worse price than your entry price.
- Stop-Loss – this is quite similar to trailing stop and also needs to be set at a price lower than the entry price.
Conclusion!
Bybit liquidation is one of the most crucial concepts every trader needs to be familiar with. If you are new to the crypto space make sure you know the details mentioned above before you start trading.
