We consider Bybit to be one of the best futures exchanges out there for cryptocurrency. It offers leverage trading for up to x100 for BTC, ETH, EOS and XRP. The market has enough volume, no execution errors as it’s more popular competitor(BITMEX), and a very very nice interface that allows for quick trading . They are really providing the features we need to trade futures . Because they are really keeping up to date with client demands and optimisations they manage to grow their trader base bigger and bigger every day. The recently launched a new feature that we will cover in this article.
Bybit mutual insurance review
Their new product is a mutual insurance. In short they assure your positions… yes, you heard right you can insure your positions right now, isn’t it awesome? Let’s dive deeper into the subject.
What is the bybit mutual insurance?
Bybit describes it as a risk management tool, a feature that helps protect capital and helps the trader to continue trading even after a loss. In reality any insurance is a risk management tool if you think about it . Bybit injected 200 BTC to the base pool of the insurance fund.
So how does it work? the mutual insurance button becomes available once you have an active position, once you click on it you get a popup window which has the necessary details.
You have the possibility to assure the whole position or part of it and you have three durations to choose from. Once the insurance period is over you can automatically renew the insurance if you have enough funds. The funds for the bybit mutual insurance payments are held separately from your trading account and they can be topped up in the same window.
Mutual Insurance Premium
Based on the Black Scholes model , the premium gets higher with higher volatility, insured price and insurance duration. Besides the basic model, Bybit also takes into account some other factors like mutual fund coefficient, max payoff coefficient, short-term insurance coefficient and …. some other factors that frankly are too technical to be reviewed in this post.
If you want to know more and fill your head with all the infos, they did a good job of describing the service here .
Let’s sum up the features we found and tested so you don’t have to read all the technicalities:
- Cost of the insurance is insurance fee + premium
- The insurance can cover all of the position or just part of it
- The trader can settle before expiration (limit/market close/liquidation) or after the expiry(liquidation)
- Max insurable amount of 200k per position or 1M per account.
- If you update your position you are only insured for the initial position
- You can partially close a position and be settled for it
These are the most important aspects of the mutual insurance, but is it really helpful?
The difference between insurance and Stop-Loss
For this to be clear we would need to have 2 examples, one with stop loss and one with insurance. We will take a long position for the amount of $5000 with cross leverage and an entry at $9581 .
Case 1 – The trade goes bad, the market drops :
Insured position : Gets settled at the insured price of $9581 (assuming you insured at the same time you opened position), trader has payed the insurance 0.016BTC(calculation based on the factors cited above), no control over the risk level besides position percentage and time.
Stop-Loss position: Gets stopped wherever you want it to (with possible slippage), gives freedom according to your personal risk management plan. No straight up fee .
Case 2 – Trade goes in the predicted direction
Insured position: The trader has payed the insurance fee of 0.016BTC and it will will be deducted from the profit of the position. This is a really bad case for the insured position as sometimes profits are made in really short channels.
Stop-Loss position: The trader has set the stop-loss as a preferred risk management tool and no upright fee. Because the trade went in the right direction the trader benefits from the full profits of the position.
Ending word
Even if we find the mutual insurance a nice tool to have (more ui friendly really) we would take the Stop-Loss over it at any time.
Our cryptocurrency trading signals are always issued with stop-loss so you can manage your risks properly.
If you want to trade on Bybit feel free to create an account here.