Maintenance Margin: Optimizing Position Management Beyond Liquidation

Maintenance margin plays a critical role in the landscape of leveraged trading, acting as a safeguard that prevents traders from falling into debt with their broker. It's the minimum amount of capital required to keep a trading position open, and is especially crucial during market downturns, when asset prices may decline sharply. At Bybit, the approach to maintenance margin involves unique calculations that enhance user experience and risk management.



Key Takeaways:



• Maintenance margin is essential for managing and maintaining leveraged positions.

• Bybit employs a distinctive method to calculate maintenance margin, offering advantages over traditional models.

• Understanding Bybit's maintenance margin can lead to improved trading strategies and risk management.

What Is Maintenance Margin?

Maintenance margin is the minimum amount of margin a trader must maintain in their position or account to keep it active and prevent liquidation. This requirement ensures that the account has enough equity to cover potential losses, safeguarding both the trader and the exchange during volatile market conditions.

How Does Maintenance Margin Work in Risk Limit?

The risk limit is an essential risk management tool aimed at reducing traders' exposure to risks. In highly volatile markets, large positions with high leverage can result in significant contract losses upon liquidation. If the insurance fund cannot fully cover these losses, the auto-deleveraging (ADL) system is activated. Large, highly leveraged positions increase the risk of ADL for other traders on the exchange. To mitigate the risk of triggering ADL, Bybit imposes risk limits on each trading account based on its total contract value.

The risk limit ensures that as traders hold larger contract values, the maximum allowable leverage decreases. As the size of a trader's position increases, the required maintenance margin also increases by a fixed percentage relative to the contract value. 

Each trading pair has a base rate for the maintenance margin, which adjusts according to changes in the risk limit tiers. For example, when you open a BTCUSDT position with a position value of 2,000,000 USDT or below, the maintenance margin rate (MMR) required for the position is 0.5% of the position value. If the position value increases to 2,600,000 USDT, the MMR required will also increase to 0.56% of the position value.

How Does Bybit Calculate Maintenance Margin Differently From Other Exchanges?

The maintenance margin rate for each position is determined using a tier-based calculation, according to the margin level of the position value. 

Typically, exchanges calculate the maintenance margin based on the total position value and the new tier MMR.

Examples of Maintenance Margin Calculation at Other Exchanges

The table below shows the margin parameters of XYZUSDT contracts. 





A trader uses 10x leverage and opens a long position of 100 contracts at a price of 4,000 USDT:

Position Value = Contract quantity × Order price

= 100 × 4,000 = 400,000 USDT

Initial Margin = Position Value/Leverage

= 400,000/10 = 40,000 USDT

Maintenance Margin = Position Value × MMR

= 400,000 × 3.5%

= 14,000USDT

Other Exchanges’ Liquidation Price: [Position Value * (Leverage − 1)/Leverage + Maintenance Margin]/Contract quantity = [400,000 * (10 − 1)/10 + 14,000]/100 = 3,740 USDT

This means the position can withstand a maximum unrealized loss of 26,000 USDT (40,000 USDT − 14,000 USDT) before liquidation is triggered.

However, Bybit calculates only the excess value above a specific tier for the MMR calculation of the new tier. As a result, Bybit requires less maintenance margin, and the liquidation price is further from the current price, creating a more favorable trading experience for traders with large positions.

Example of Maintenance Margin Calculation on Bybit

Bybit Maintenance Margin = Position Value × MMR

= (100,000 × 2%) + (100,000 × 2.5%) + (100,000 × 3%) + (100,000 × 3.5%)

= 11,000USDT

Bybit’s Liquidation Price: [Position Value * (Leverage − 1)/Leverage + Maintenance Margin]/Contract quantity = [400,000 * (10 − 1)/10 + 11,000]/100 = 3,710 USDT

This means the position can withstand a maximum unrealized loss of 29,000 USDT (40,000 USDT − 11,000 USDT) before liquidation is triggered.

Benefits of Maintenance Margin on Bybit

There are various advantages to having lower maintenance margin requirements, as follows.

Increased Position Stability

The reduced maintenance margin at Bybit helps maintain position stability even in turbulent markets. This allows traders to adhere to their strategic positions longer without the frequent need to top up their margins, which can be particularly advantageous in strategies that anticipate recovery from market dips.

Improved Risk Management

Effective risk management is crucial in trading. Bybit's maintenance margin model facilitates effective risk management by minimizing the frequency of margin calls. This system allows traders to manage their portfolios more calmly and strategically, focusing on long-term objectives rather than short-term volatility.

Bybit's Ultimate Safeguard for Lower Maintenance Margins

While lower maintenance margins offer numerous benefits, they also increase the risk to and pressure on the insurance fund. In the event of liquidation, the insurance fund is responsible for covering losses. If the insurance funds are insufficient, auto-deleveraging (ADL) will be triggered. However, Bybit has over 267 million USDT in insurance funds, providing a substantial safety net to handle extreme market conditions. Based on rigorous backtests running back to 2020, Bybit’s insurance funds have proven sufficient to deal with highly volatile markets.

In order to further ensure security, Bybit’s liquidation engine utilizes a sophisticated model to efficiently manage all liquidated positions in volatile markets. This advanced system ensures that liquidations are handled smoothly, which minimizes the impact on traders and maintains market stability. Bybit’s commitment to maintaining a robust and efficient liquidation process ensures that traders can trade with confidence, even in the most volatile market conditions.

The Bottom Line

In conclusion, Bybit's maintenance margin rate system employs a tier-based calculation method based on the margin level of each position. Unlike other exchanges, Bybit calculates the MMR for the excess value above a specific tier, which leads to a wider gap between the liquidation price and the current price. This unique approach enhances the trading experience, especially for traders with substantial positions, by providing more favorable conditions and reducing the risk of liquidation.



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