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In two minutes, understand the difference between isolated and cross margin!
Many newcomers still do not know the difference and basic concepts between isolated and cross margin, so today we will discuss what isolated and cross margin are!
1. Isolated Margin Mode
The margin required to open a position will serve as the fixed margin for the contract's position.
When using the isolated margin model, you can hold positions in both directions, with the risks of short and long positions calculated independently. Each contract's dual-position margin and profits will be calculated independently.
Advantages of Isolated Margin Mode: Liquidation will only result in the loss of the margin for that position, which means that the amount of position margin is the maximum loss. You will only lose the margin amount for that direction's position, and it will not affect other funds in the contract account.
2. Cross Margin Mode
All balances transferred to the contract account will serve as the margin for the contract's positions, and all profits and losses generated by the contracts will be calculated as the margin for the positions. When using the cross margin model, the risk and profit of all positions in the account will be calculated together. Liquidation will only occur when the losses exceed the account balance.
Advantages of Cross Margin Mode: The account has a stronger ability to endure losses, making it easier to operate and calculate positions, and is therefore commonly used for hedging and quantitative trading.
3. Comparison of the Two
Cross Margin Mode: It is relatively difficult to get liquidated in low leverage and volatile markets, but when facing major market events or uncontrollable factors that prevent trading, it can potentially lead to the account's total funds being reduced to zero.
Isolated Margin Mode: More flexible than cross margin mode but requires strict control over the distance between the liquidation price and the mark price; otherwise, individual positions can easily get liquidated, resulting in losses.
Example:
A and B both use 2000 USDT with 10x leverage to long BTC/USDT contracts.
A uses isolated margin mode, occupying 1000 USDT as margin, while B uses cross margin mode.
Assuming A's liquidation price is at 8000 USDT and B's liquidation price is at 7000 USDT.
If BTC suddenly drops to 8000 USDT, A's account will lose 1000 USDT in margin and will be forcibly liquidated, resulting in a loss of 1000 USDT, leaving 1000 USDT.
Meanwhile, B, using cross margin mode, will still hold the long position after a loss of 1000 USDT. If the price rebounds at this point, B might be able to turn the loss into a profit. However, if the price continues to drop, B could potentially lose the entire 2000 USDT.
Many newcomers still do not know the difference and basic concepts between isolated and cross margin, so today we will discuss what isolated and cross margin are!
1. Isolated Margin Mode
The margin required to open a position will serve as the fixed margin for the contract's position.
When using the isolated margin model, you can hold positions in both directions, with the risks of short and long positions calculated independently. Each contract's dual-position margin and profits will be calculated independently.
Advantages of Isolated Margin Mode: Liquidation will only result in the loss of the margin for that position, which means that the amount of position margin is the maximum loss. You will only lose the margin amount for that direction's position, and it will not affect other funds in the contract account.
2. Cross Margin Mode
All balances transferred to the contract account will serve as the margin for the contract's positions, and all profits and losses generated by the contracts will be calculated as the margin for the positions. When using the cross margin model, the risk and profit of all positions in the account will be calculated together. Liquidation will only occur when the losses exceed the account balance.
Advantages of Cross Margin Mode: The account has a stronger ability to endure losses, making it easier to operate and calculate positions, and is therefore commonly used for hedging and quantitative trading.
3. Comparison of the Two
Cross Margin Mode: It is relatively difficult to get liquidated in low leverage and volatile markets, but when facing major market events or uncontrollable factors that prevent trading, it can potentially lead to the account's total funds being reduced to zero.
Isolated Margin Mode: More flexible than cross margin mode but requires strict control over the distance between the liquidation price and the mark price; otherwise, individual positions can easily get liquidated, resulting in losses.
Example:
A and B both use 2000 USDT with 10x leverage to long BTC/USDT contracts.
A uses isolated margin mode, occupying 1000 USDT as margin, while B uses cross margin mode.
Assuming A's liquidation price is at 8000 USDT and B's liquidation price is at 7000 USDT.
If BTC suddenly drops to 8000 USDT, A's account will lose 1000 USDT in margin and will be forcibly liquidated, resulting in a loss of 1000 USDT, leaving 1000 USDT.
Meanwhile, B, using cross margin mode, will still hold the long position after a loss of 1000 USDT. If the price rebounds at this point, B might be able to turn the loss into a profit. However, if the price continues to drop, B could potentially lose the entire 2000 USDT.
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.
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