Understand the difference between isolated margin and cross margin in two minutes, folks, stop messing around!
Newbies entering the space often stumble on these two modes, today I'll clarify it for you to avoid being liquidated without knowing how it happened.
1. Isolated Margin: It's a thrill, but you know what you lose
Your margin is like a separate bet, you can enjoy big wins, but if you lose, you only lose that one trade. For example, if you open both long and short positions, even if one direction crashes, the other can continue without interference.
Advantages: If you get liquidated, only that position is affected, it won't drag down other funds in your account, suitable for seasoned traders who prefer precise operations.
2. Cross Margin: Either become rich or go to zero
All the money in your account is your margin, it has strong endurance, suitable for long-term traders. But if you encounter extreme market conditions, like a black swan event, it could wipe you out completely.
Advantages: Strong ability to withstand fluctuations, suitable for arbitrage or quantitative trading experts, but you need to have a strong mental fortitude.
3. Let's compare, how to choose?
Cross Margin: Low leverage + decent market conditions are fine, but in the case of a one-sided crash, your account might evaporate completely, suitable for calm and laid-back traders.
Isolated Margin: Flexible, but keep a close eye on the liquidation price, a little too much risk can easily lead to liquidation, suitable for short-term traders who enjoy precise targeting.
For example:
A and B each take 2000 USDT to open a 10x long position, A uses isolated margin with 1000 USDT, B goes all in with cross margin.
If BTC crashes to A's liquidation price (8000 USDT), A loses 1000 USDT and exits, still having 1000 USDT to continue trading.
What about B? If it continues to drop, B could lose the entire 2000 USDT; but if it rebounds, B could turn it around.
Advice:
Newbies: Start with isolated margin, control risk, don't go all in right away.
Veterans: Arbitrage with cross margin can work, but remember to set stop losses, don’t wait until you’re liquidated to regret not being more cautious.
Trading contracts is not gambling; strategy is more important than luck, don’t wait until you’ve lost everything to regret not understanding this sooner!
Follow Yuanbao for more learning
