In two minutes, understand the difference between isolated margin and cross margin! Many partners are new to the market and still do not know the difference and basic concepts between isolated margin and cross margin. Today, let's talk about what isolated margin and cross margin are!

1. Isolated Margin Mode

The margin required when opening a position will be fixed as the position margin for the contract. In isolated margin mode, positions can be held in both directions, and the risks of short and long positions are calculated independently. The margin and profit of each contract's dual positions will be calculated independently.

Advantages of Isolated Margin Mode: Liquidation will only result in the loss of the position margin, meaning the amount of position margin is the maximum loss. Only the margin amount of that directional position will be lost, and it will not affect other funds in the contract account.

2. Cross Margin Mode

All balances transferred to the contract account, along with all profits and losses generated by contracts, will serve as the position margin for the contract. In cross margin mode, the risks and profits of all positions in the account will be calculated together. A liquidation will only occur when the losses of the positions exceed the account balance.

Advantages of Cross Margin Mode: The account can withstand losses better, making it easier to operate and calculate positions; thus, it is commonly used for hedging and quantitative trading.

3. Comparison of the Two

Cross Margin Mode: It is relatively difficult to be liquidated under low leverage and volatile conditions. However, when encountering significant market movements or uncontrollable factors preventing trading, it can easily lead to the account's total funds being zeroed out.

Isolated Margin Mode: It is more flexible than cross margin mode, but it 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 and 10x leverage to go long on the BTC/USDT contract.

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 falls to 8000 USDT, A's account loses 1000 USDT margin and is forcibly liquidated, losing 1000 USDT and remaining with 1000 USDT.

On the other hand, B using cross margin mode, after losing 1000 USDT, still holds the long position.

If the price rebounds at this point, B may turn losses into profits; however, if the price continues to fall, B may lose the entire 2000 USDT.