Under the USDC margin system, account maintenance margin (MM) is a key indicator for evaluating the risk level of your account. Liquidation will be triggered when the account MM rate hits 100%. 

 

The liquidation process of USDC options differs according to the margin modes: regular margin and portfolio margin. Within the two margin modes, the parameters that affect account MM are also different. The calculation formulas are as follows:

 

 

 

Regular Margin

Account MM Rate = Maintenance Margin/Margin Balance

Regular margin is based mainly on margin balance, initial margin, and maintenance margin. It determines an account’s risk of being liquidated.
 

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Initial Margin and Maintenance Margin Calculations (Options) 
Maintenance Margin (USDC Contract)
Liquidation Process (USDC Contract)
 

When the account MM rate reaches 100%, a liquidation is triggered. Once liquidation occurs, the system will first liquidate the USDC Perpetual contract positions.

 

If the account MM rate still hits 100%, all short Options positions will be liquidated to reduce the risk to your USDC Account. The order of liquidation of short Options positions depends on the amount of margin that can be released after liquidation. The liquidation engine will prioritize orders that can be filled in the order book. If the liquidity of the order book is insufficient, Bybit will utilize OTC market makers to square off the positions to reduce the MM rate. During this process, Bybit will not expropriate customers’ margins, a liquidation fee will be charged instead to maintain the insurance pool for the coverage of risk factors.

 

Please note that long Option positions will not be liquidated, as the maximum loss an Options buyer may face is the cost of buying an Option — i.e., the premiums paid and trading fee.

 

 

 

 

 

 

 

 

Portfolio Margin

The portfolio margin mode determines the liquidation risk of an account based on equity, the initial margin and the maintenance margin.

 

Account MM Rate = Maintenance Margin/Equity

Equity = Margin Balance + Option Market Value

 

Note: Traders can use the account maintenance margin and account initial margin (IM) to evaluate the account risk.

 

Under the portfolio margin mode, when the MM rate hits 100%, liquidation will be triggered. The specific liquidation process is as follows:

1. Cancel all orders in the account.

2. If the MM rate in the account remains at or above 100%, the laddered liquidation system will square off positions according to the release margin.

 

During this process, Bybit will not expropriate customers’ margins, a liquidation fee will be charged instead to maintain the insurance pool for the coverage of risk factors.

 

 

Example

Suppose Trader A holds a long Perpetual position of 300,000 USDC, a short position of 500,000 USDC Options, and places a limit order for 1,000,000 USDC.

 

When the MM rate in the account reaches 100%, liquidation is triggered. The specific liquidation process is as follows:

 

1. Cancel the limit order of 1,000,000 USDC.

2. For the 300,000 USDC Perpetual long position and 500,000 USDC Options short position, the liquidation engine will compute the MM rate that will be released from closing each individual position.

3. Assuming the computation that squaring off the short 200,000 USDC position will result in the release of more margin, this above mentioned position will be squared off.

4. During the specific liquidation process, there are two possible situations as follows:

 

a. In the process of liquidating a short position of 200,000 USDC Options, the liquidation engine detects that the total value of standing orders available in the order book is 400,000 and the total volume of quotations reasonably close to the mark price is about 300,000 then the position will be liquidated. The liquidation engine will close the 200,000 positions by the order book.

b. In the process of liquidating the 200,000 USDC Options short positions, the liquidation engine detects that the total volume of standing orders available in the order book is 400,000 but the total volume of quotations reasonably close to the mark price is only 150,000 then the liquidation engine will close 150,000 USDC by the order book. For the remaining 50,000 USDC positions, the liquidation engine will send the order to an OTC platform where external market makers will bid to complete the transaction.

 

If the system deems that the position still has high levels of risk exposure (MM rate over 160%), the liquidation engine will take over the position and the entire position will be liquidated.