In two minutes, let's understand the difference between isolated margin and cross margin!
Many newcomers are still unaware of the differences and basic concepts between isolated margin and cross margin. Today, we'll discuss what isolated margin and cross margin are!
1. Isolated Margin Mode
The margin required when opening a position will be used as the fixed margin for the contract's position.
When using isolated margin mode, both long and short positions can be held, with risks calculated independently for each. The margin and profits for each contract's dual positions will be calculated independently.
Advantages of Isolated Margin Mode: Liquidation only results in the loss of the position's margin, meaning that the amount of the position's margin is the maximum loss. Only the margin amount for that directional position will be lost, without affecting other funds in the contract account.
2. Cross Margin Mode
All balances transferred to the contract account will be used as the position margin for all contracts. When using cross margin mode, the risks and profits of all positions in the account will be calculated together, and liquidation will only occur when losses exceed the account balance.
Advantages of Cross Margin Mode: The account has a stronger capacity to bear losses, making it easier to operate and calculate positions, which is why it is often used for hedging and quantitative trading.
3. Comparison of Both
Cross Margin Mode: It is relatively less prone to liquidation in low leverage and volatile markets, but in the event of significant market movements or uncontrollable factors preventing trading, it could lead to the account's total funds being wiped out.
Isolated Margin Mode: It is more flexible than cross margin mode, but requires strict control over the distance between the liquidation price and the mark price; otherwise, a single position can easily be liquidated, causing losses.
Example:
A and B both use 2000 USDT, with 10x leverage to go long on the BTC/USDT contract.
A uses isolated margin mode, occupying 1000 USDT in margin, while B uses cross margin mode.
Assuming A's liquidation price is 8000 USDT, and B's liquidation price is 7000 USDT.
If BTC suddenly drops to 8000 USDT, A's account loses 1000 USDT in margin and is forcibly liquidated, losing 1000 USDT, leaving 1000 USDT.
On the other hand, B, using cross margin mode, loses 1000 USDT, but the long position remains,
If the price rebounds, B may turn losses into profits, but if
the price continues to drop, B may lose the entire 2000 USDT. #UnderstandingCandlesticks #NasdaqCryptoETFExpansion #CryptoMarketRebound #Strategy增持比特币
