How to Margin Trade on Bybit — the Superior Derivatives Exchange
Full Disclosure: This is not a sponsored article, this is an article to help educate on the benefits of margin trading, specifically through Bybit.
If you find this article helpful, we encourage you use our link to sign up for a Bybit account by clicking our link here
The aim of this article is to give you a quick overview of the following:
- What is Bybit?
- What is margin and leveraged trading?
- How do I place a leveraged trade on Bybit?
What is Bybit?
Bybit is a relatively new Bitcoin and altcoin futures exchange that offers leveraged trading of BTC/USD, ETH/USD, XRP/USD, and EOS/USD. They are based out of Singapore and joined the crypto community this past year. The exchange operates under Bybit Fintech Limited, a company that is registered in the British Virgin Islands filled with finance and blockchain alums from some of most respected organizations in their field. The exchange offers an “air-gapped” multi-signature cold storage wallet, state of the art security and the incredible benefit of an insurance fund to manage market risk; the safety of their clients funds is the top priority.
At the current pace Bybit is likely to surpass all current available options as the leader for leveraged derivatives trading. When you trade on futures exchanges you are not trading actual bitcoin, you are trading “delta one”, or the derivative associated with the underlying spot commodity and use your bitcoin as the collateral.
(Something that many traders may appreciate is the fact that ByBit is a completely anonymous exchange. There is no KYC required before you can trade. This is great for those privacy hawks who are worried about the risks of data breaches.)
From a technical standpoint, no other exchange even comes close to Bybit’s matching engine speed. At 100,000 TPS (transactions-per-second) Bybit is the far superior alternative to Bitmex and Deribit, who clock in at a slow 500 TPS and 5000 TPS respectively.
Benefits of using Bybit
- NO SYSTEM OVERLOAD
That’s right, in a community full of Bitmex memes in regard to system overload, Bybit is able to accommodate your order in even the most hostile conditions (think volatility and high volume surges). One of the main detractors from using Bitmex was that sometimes your order request would not be able to be satisfied which can leave you left out, or left in, a trade at the wrong time.
2. TAKE-PROFIT AND STOP-LOSS ORDERS COMBINED
Bybit allows you to place a trade with both a target and a stop in place, all at once. Rather than have to go through these steps individually, Bybit simplifies this entire process. When entering into a trade the last thing you need to be doing is setting up all of these triggers separately, while leaving a trade open and your position exposed. Even in that short span of time the market can easily switch directions.
Lets talk about margin trading with leverage.
Leverage- and benefits
Leverage is the increased purchasing power that is acquired through using a margin account, which is expressed via a ratio between the amount of capital you currently have and the amount that you can employ in any given trade
Essentially, by using leverage you can trade a large value by using a small amount of our capital.
1- Mitigate for counterparty risk
Counterparty risk is the risk associated with one of the parties involved in a financial transaction, and in the case of crypto this was a once more common problem in the form of exchange hacks.
One of the key benefits of using leverage, especially with cryptocurrency is to mitigate for counterparty risk. The use of leverage allows us to keep most of our crypto stored in a off exchange wallet, while using a portion of it on exchange to represent what might be our greater off exchange amount.
Think of it this way, if you have 1 BTC in a wallet, you can deposit 1/10 of that onto a leveraged futures exchange, turn up the leverage to 10x and trade as if you were using 1 whole Bitcoin. The use of high leverage is not advised but this is a clean example.
You can deposit 1/10 of that onto a leveraged futures exchange, turn up the leverage to 10x and trade as if you were using 1 whole Bitcoin.
2- Greater capital efficiency and greater exposure
By effectively using a small amount of capital to control a larger position, leverage helps us achieve greater capital efficiency, which is essentially being more efficient at successfully employing the limited capital we have. We can reduce the amount of capital that is used for individual trades in order to take on more positions and therefor gain more market exposure.
3- Everyone’s favorite- Increasing leverage on individual trades to reap large rewards.
A trader who uses Bybit exchange can potentially deposit 1 Bitcoin to control 100 BTC. In a bull market that is trending up on strength, just adding 3–5X leverage can drastically increase your long term performance. Think of the spot price of Bitcoin. If you own 1 Bitcoin at 10,000$ and it goes up 1,000$ you make just that. If you are using leverage on that amount, that increase would be multipled by however much leverage you applied.
just adding 3–5X leverage can drastically increase your long term performance.
As a reminder though, leverage works in the opposite direction as well, and not exercising proper risk management can break a trader.
Leverage when used with proper risk management can be a game changer, without it and you will quickly ruin an account. This often comes in the form of over-leveraging which will lead to liquidation.
To open a leveraged position you must deposit an initial margin amount in order to maintain this position. On Bybit, you can deposit any amount up to 1 BTC to control up to 100 BTC. If your position experiences an adverse excursion that causes the position margin requirement to not be met, your position will be liquidated.
(Luckily on Bybit, you don’t have to expose your whole account as margin and risk liquidating your entire account. Instead you can use the isolated margin feature to limit specific margin to specific trades)
Leverage Amount (1x to 100x)
Bybit offers up to 100x leverage, this can be accessed using the leverage slider bar or manually typing in a specific leverage amount to the desired decimal place.
Each time you place a leveraged trade your liquidation amount will be listed, it is crucial that you understand just how close these get on the higher leverages.
100x Leverage in a long you will be liquidated if price moves down roughly 1%.
25x leverage it would be roughly 4%
10x it would be roughly 10%
While 100x your gains sounds exciting it can become dangerous especially when dealing in extremely volatile markets. You should be aware of current market conditions always when considering the use of certain leverage. If the market currently has a high average range relative to the norm, or an increase in volatility beyond the normal standard deviation of price movement, you would be foolish to use high leverage.
There is a minor funding fee typically for those who are trading with the majority in terms of overall position directions. (longs or shorts) This fee % is on the notional value of the trade. Theoretically if price moves sideways long enough your trade will be liquidated, though this is more common on spot exchanges that offer margin and leverage at higher interest rates.
Always use a Bybit MARKET stop. In the case of high leverage using a market stop is imperative to guarantee that we are 100% exited from a trade. The possibility of using a limit stop and the price moving right through our exit without getting us out of the trade is too great of a risk to bear.
Slippage with a sure exit is better than being liquidated.
Depending on the position sizing and risk management of the individual trader, typically higher leverage requires use of tighter stops. If we are using lower leverage this allows us to use wider stops.
Acknowledging this we must recognize that our strategy, trading style and market conditions must afford us this to begin with.
Trend following in a market that has a wide daily range might not afford us the use of high leverage unless we catch a perfect entry with no movement against us beyond that point. The stop should be well before the liquidation point and a market that is trending with a wide range will need some room to breathe.
How to Place a Trade on ByBit.
First lets recognize how great the actual platform looks. From a user experience standpoint, it is clean and organized.
The order entry panel below is similar to one that you would find on all other exchanges, with the added feature of a sliding limit price bar and the contingent/conditional order functions that most other exchanges do not have.
The sliding bar makes it very easy to adapt to a fast moving market, instead of needing to constantly re-enter your price you can just slide beyond or below.
The Isolated margin makes it so that you do not need to expose your account to potential flashes in the market as you would with deribit. You can place individual trades with individual margin allotments.
See examples below:
Those contingent order types that are not typically found on other exchanges have an important purpose.
- Fill or Kill
A (FOK) order is an order that either executes immediately and completely or does not at all and is canceled.
This order is useful for traders/investors trying to place large orders that might otherwise take a long amount of time to fill, therefore indicating their position to the market.
- Immediate or Cancel
A (IOC) order is an order that must be immediately filled or it will be canceled. The difference between this order type and an (FOK) is that this order type allows for partial filling.
These are useful for traders/investors trying to place large orders who do not want to get a bad fill.
- Good ’Til Canceled
A (GTC) order will remain open for a specific price point regardless of the amount of time that passes.
This is useful for traders/investors who want to enter or exit the market and are not worried about timeframe.
So you placed the order, chose your leverage and picked your conditionals
After choosing the order that you wish to place you are presented with this screen which makes it very easy to identify all the key information relative to your trade. i.e. Entry price, liquidation price, current market price, index price etc.
This is also where one of the key features comes into play. You are able to place your stop-loss and take-profit target as part of order. This makes the whole process very simple and reduces the added stress that can burden a trader when taking these steps separately.
After confirmation your order will be placed. If it is a market order it will be executed immediatly at the best available price. Bybit is very liquid.
Now that your trade is executed it is important to remember that trade management after entry is very important. If you do not already have a take-profit target in you need to always keep an eye on the market.
Have specific levels in mind in which you want to begin to scale out of positions. Have an answer for all possible scenarios that might unfold, and absolutely above all, have a Market-Stop in place at a clear invalidation level for the trade.
All these things should be understood and evaluated before the trade is taken, but it is important to be able to adapt to unknowns on the fly.
Remember, leverage is a double edged sword. Before using leverage you should have a tested strategy and methodology that has proven to have positive expectancy. Bybit offers a testnet platform that is identical to the actual trading platform. Spend time trading on this to first get comfortable with the process.
Closing thoughts and Tips…
- More systematic and passive strategies such as trend-following and momentum trading are great with added healthy amounts of leverage (LOW). Buying dips in a bull market with 3–5X leverage and following the trend can be tremendously rewarding in the long run
- Let market conditions and location of price relative to S/R (support and resistance) influence leverage levels. For those that use market structure stop placements especially.
- In a strong trend, closer to support + volatility compressing → and you can risk higher leverage with a tighter stop.
- Market in a wider range + greater volatiltiy → Lower leverage as price needs room to breathe, therefore your stop will need space as well.
- If you feel uncomfortable in the trade immediately, you have too much leverage on.
- Pay attention to funding, longs are either paying shorts, or shorts are paying longs. When the market is crowded in one direction it becomes expensive for positions to remain open. → Everyone closing out at once causes a spike in volatility.
- Be careful of entering into obvious patterns well after price has extended. Crowded trades filled with high leveraged traders are easily tipped in the opposite direction. → Think cascade.
As with everything, start small, get comfortable, and remain disciplined. When you have a system that is showing promise head over to Bybit.com and benefit from the features of the exchange, and the added benefits of proper use of leverage.
As always, exercise proper risk management, and trade effectively.
and don’t forget…
The Current Bybit Promption
Don’t forget your $50 deposit bonus when meeting the minimum requirements for trading on Bybit, you can try Bybit for free by clicking here.
Be on the lookout for more tips and education on margin trading in the future