[Bybit: Virtual currency, NFT] Thorough explanation of compulsory loss cut and zero cut margin system calculation method


Many people are interested in leveraged trading on Bybit. At that time, the forced loss cut will be worrisome. Leveraged trading has the advantage of making large profits, but it also carries the risk of large losses. I am writing an article about loss cut and zero cut.

What is Bybit? Main functions and features

Bybit boasts the highest level of popularity and reputation among overseas crypto asset exchange rankings, even compared to Bitget and Binance. There are many payment methods available, including credit cards, fiat currencies, and virtual currencies. Since zero cuts are adopted, there is no possibility of traders going bankrupt. In addition, a stop-loss level is set for both short and long positions, so if the loss becomes large, it will be completely liquidated to protect your net assets. The structure is similar to that of an FX company.

Lots of campaigns and bonuses

Bybit has a wide range of bonuses and campaigns. Basically, there are many types of events and many unique campaigns. You can get the latest information on the official website. There is a maximum leverage of 100x and you can earn.

Many deposit methods available

BYBIT has a wide variety of deposit methods. Payment can be made using different methods such as credit card, fiat currency, and virtual currency. Trading symbols also support BTC, ETH, USDT, etc. Therefore, you can trade target coins on the market in the app as well.

Forced loss cut

Bybit uses a forced loss cut. Loss cut is a mechanism that forces settlement to reduce the trader’s loss. Margin calls occur when you are trading. A margin call is a warning that the loss will be cut if the unrealized loss increases. In other words, the unrealized loss is quite large, and it is in a state where it can not withstand any more. Furthermore, as the unrealized loss expands, a forced loss cut will occur.

Zero cut system

Bybit has a mechanism for forced loss cut, but it also adopts a zero cut system. The zero cut system is a mechanism in which the exchange compensates for the negative amount if it becomes negative more than the balance. This, in turn, means that traders are not at risk of debt. This is because the system does not ask for more money than the margin.

insurance fund

Bybit has a system called “Insurance Fund”. If a user incurs a large loss in trading and is unable to settle the transaction, this is a system in which the user will be compensated for the loss in excess of the margin deposit.

automatic deleveraging

In the case of bybit, if there is not enough insurance fund to compensate for losses, a mechanism is adopted that automatically deleverages the buying and selling positions in the opposite direction selected by the user. The disadvantageous price will be compensated.

What is margin call?

Margin is an additional margin payment. In addition to the initial deposit, you will be charged every time the loss falls below a certain value, and this is a system to avoid loss cuts due to insufficient margin. Bybit has no margin call. If the margin falls below a certain percentage, it will be a loss cut. There are no disadvantages of no margin call.

Some exchanges have additional margins

In fact, some virtual currency exchanges around the world have margins, so be careful. Some exchanges have the risk of borrowing money from traders, so we do not recommend trading there. I like the fact that it uses a zero cut like Bybit. For those who want to invest without extra pressure, Bybit and others are recommended.

How Margin Works

Bybit has two types of margin, each with a different meaning.

margin requirement

Margin requirement is the collateral required for leveraged trading. The margin requirement is determined by the leverage, the higher the leverage the lower the margin requirement. The higher the leverage, the higher the risk, so proper money management is required. Margin requirements are calculated differently for USDT perpetual contracts and inverse contracts.

USDT Perpetual Contract: Contract Size x Entry Amount ÷ Leverage Ratio = Required Margin

Inverse type contract: number of currencies ÷ currency amount × leverage rate = required margin

maintenance margin

Maintenance Margin is the margin required to hold a leveraged position. The maintenance margin is calculated by the margin maintenance rate of the position held. When doing leveraged trading, the margin maintenance rate changes depending on the leverage applied by the user, so the maintenance margin also fluctuates according to the leverage. The calculation method is different for USDT perpetual contracts and inverse contracts.

The specific maintenance margin calculation method for USDT perpetual contracts is as follows.

Maintenance Margin = Order Price × Maintenance Margin Rate

The margin maintenance rate for the inverse perpetual contract is as follows.

CurrencyMargin maintenance rate

How to avoid loss cut

When it becomes a forced loss cut, it often applies to either of the following. First of all, please consider reviewing the trading method.

Don’t over-leverage

People who are over-leveraged will lose a lot if they go in the opposite direction, and will be forced to cut losses. As a countermeasure, it is said not to apply too much leverage. You can use up to 100x leverage, but try to limit it. Too much leverage can make you money, but it also increases the risk of losing money.

replenish the margin

It is also possible to avoid loss cuts by replenishing the margin. You can withstand the unrealized loss by replenishing the margin, but the answer will change depending on what kind of situation it is. It is better to endure if it is a range band, but it is wise not to endure poorly when there is a strong trend.

Automatic margin replenishment function

If you set up this feature, called AMR, each time your margin approaches the stop-loss line, funds will be automatically added from your balance in your wallet. If you make good use of this function, even if the currency price moves unexpectedly, you can maintain the same amount as the initial deposit, thereby avoiding loss cuts. AMR can be set from Automatically add margin'' in thePosition” section at the bottom of the trade screen.

Timing of loss cut

With a stop-out, the position will be forcibly liquidated when the margin level of the position reaches the maintenance margin amount. Forced liquidation occurs when the position you hold reaches the maintenance margin.