On perpetual futures markets with leverage, Passivbot may expose more than 100% of the wallet's funds.
Passivbot uses only (unleveraged) wallet balance in its calculations, so adjusting leverage on exchange will make no difference on risk, profit or bot behavior, as long as leverage is set high enough for the bot to make its orders according to the configuration. Practically, this means that leverage should be set at least higher than total_wallet_exposure_limit_long + total_wallet_exposure_limit_short for the bot to have enough margin to make its orders. Otherwise, the bot might encounter "insufficient margin" errors.
To measure a position's risk, Passivbot finds the ratio of position size (in quote) to total unleveraged balance.
The formula for wallet exposure is
wallet_exposure = (position_size * position_price) / unleveraged_wallet_balance
wallet_exposure==0.0 means no position wallet_exposure==1.0 means 100% of unleveraged wallet balance is in position. wallet_exposure==4.0 means 400% of unleveraged wallet balance is in position.
E.g. if wallet balance is $1000, long position size is 100.0 and position price is 35.0,
then wallet_exposure is 100 * 35 / 1000 == 3.5
The wallet_exposure_limit is the limit beyond than which the bot will not allow a position's wallet_exposure to grow.
For example, if wallet_exposure_limit=0.6, the bot will not make any more entries when a position's wallet_exposure >= 0.6.
User sets total_wallet_exposure_limit separately for long and short. A single position's wallet_exposure_limit is total_wallet_exposure_limit / n_positions.
Bankruptcy is defined as when equity == (balance + unrealized_pnl) == 0.0, that is, when total debt is equal to total assets.
Liquidation happens when the exchange force closes a position to avoid it going into negative equity.
This usually happens before actual bankruptcy is reached, in order for exchange to cover slippage costs.
Bankruptcy price may be calculated from position and balance.
E.g.
If wallet_exposure==1.0, bankruptcy price is zero.
If wallet_exposure==2.0, bankruptcy price is 50% lower than pos price.
If wallet_exposure==3.0, bankruptcy price is 33.33% lower than pos price.
If wallet_exposure==10.0, bankruptcy price is 10% lower than pos price.
When a bot has no more entries left and wallet_exposure_limit is reached or exceeded, it is termed "getting stuck".
If a long position is stuck and the price keeps falling, the distance between position price and market price grows larger, and closing the position in profit becomes less likely. Therefore it is desirable to bring position price closer to price action such that the position may be closed in profit on a small bounce.
To achieve this, the position must be increased. However, the larger the position size, the higher the risk of liquidation, should the price keep moving the wrong way.
While correlation is observed in most markets in general and in crypto markets in particular (e.g. if the price of bitcoin crashes, most other cryptos tend to follow closely), it is also observed that the "dead cat" often bounces at slightly different times and at different heights. Therefore, diversifying to multiple coins helps reduce the risk of a single bad coin destroying the whole account.
A thousand coin flips will converge on 500 heads and 500 tails. One single coin flip will be either heads or tails. So it may be more desirable to end up with 3 out of 10 bots stuck, each with wallet_exposure==0.1, than with 1 single bot stuck with wallet_exposure==1.0.