Bybit is one of the most popular crypto exchanges in the market and knowing about Bybit liquidation is one of the factors you need to consider if you intend on using the platform. Familiarizing yourself with the concept of liquidation is crucial, whether you are a crypto investor or trader. This is one of the aspects that can either reduce or increase your financial loss, especially if you are new to crypto trading.
Understanding liquidation price Bybit and other relevant factors can help you trade crypto in a much easier and convenient way. However, if you begin crypto trading without properly understanding the concept, it might cause you to have a stressful experience, which can also be financially damaging.
Therefore, if you are new to the crypto space and want to start trading then you should know about liquidation, how it occurs, how to prevent it and other such details.
What is Bybit Liquidation?
Liquidation can cause quite the dent in your finances if you are not careful while trading crypto. It basically means to sell an asset, which is a digital asset in this case, for cash.
As a crypto trader, if you start trading and you are unable to meet the margin requirement for your leveraged position then all your funds might end up being liquidated by force.
This will cause you to lose all your initial margin and any of your trading positions will be closed. The chances of experiencing liquidation occur when you are trading with leverage.
Leverage trading means borrowing funds from the broker so you can open bigger trading positions without using a large amount from your own funds. This is both financially beneficial and extremely unbeneficial at the same time, depending on a few factors.
Therefore, if you want to start trading with Bybit then you should know that there are two types of liquidation that are mentioned below in detail.
Two Types of Liquidation
Bybit liquidation is an important concept that you can determine the kind of experience you have while trading crypto. However, there are two types of liquidation on Bybit and it is essential to know about both of them so you can understand how they are different and affect the traders differently.
Partial Liquidation
Partial liquidation is one of the types of liquidation. As the name suggests, this type of liquidation occurs when the trading position of a user is only partially closed. The partial liquidation occurs earlier and limits the position and leverage that is used by the trader.
This type of liquidation is more beneficial for the crypto exchange as it limits the risk the exchange may experience while the traders are waiting for potential profits that may or may not occur.
Total Liquidation
The second type of Bybit liquidation is called the total liquidation. The definition of this type of liquidation is also hinted at in its name.
Total liquidation is the type of liquidation where all the initial margins of the trader are used and the trading position of the user is closed. Unlike partial liquidation, this type of liquidation is more suitable and safer for the traders because the traders do not lose any profits they make when total liquidation occurs.
How Does Liquidation Occur on Bybit?
Once you have an idea about what liquidation is and its types, you should also know how it occurs on the Bybit exchange.
Bybit is one of the top options for people who are interested in margin trading. However, you cannot simply start margin trading, especially if you are unfamiliar with concepts such as liquidation.
Therefore, if you want to use Bybit you should know that liquidation occurs on this exchange when the mark price hits the liquidation price.
Mark price is also called the spot price and is the average price that is calculated from the major crypto exchanges. When the mark price hits liquidation price and liquidation occurs on the exchange it means that the last traded price was not responsible for liquidation.
Avoiding Liquidation on Bybit
Among other factors to know about Bybit liquidation, you should also know how it can be avoided. As a crypto trader, if you use Bybit you can know that liquidation can be avoided by adding margin to your trading positions.
Margin can be added to your trading positions by Auto-margin replenishment or Isolated Margin mode. The former mode adds margin automatically, whereas, the latter mode adds margin manually.
Conclusion!
Traders who do not consider or anticipate a factor such as Bybit liquidation while trading, can face quite the challenge, especially if they are new to the crypto space. Therefore, it is important that you take a look at factors such as liquidation and have the above-mentioned information before you start trading.