In two minutes, understand the difference between isolated margin and cross margin! Many newcomers still don't 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 serve as the fixed margin for the contract's position. When using the isolated margin mode, positions can be held in both directions, with the risks of short and long positions calculated independently. The margin and profits of each contract's dual positions will be calculated separately.

Advantages of Isolated Margin Mode: Liquidation will only result in the loss of the position's margin, meaning that the amount of the position margin is the maximum loss. Only the margin amount of the position in that direction will be lost, without affecting other funds in the contract account.

2. Cross Margin Mode

All balances transferred into the contract account will serve as the position margin for the contract, and all profits and losses from contracts will be combined as the position margin. When using the cross margin mode, the risks and profits of all positions in the account will be calculated together. Liquidation will only occur when the loss of the position exceeds the account balance.

Advantages of Cross Margin Mode: The account has a strong ability to withstand losses, making it easier to operate and calculate positions. Therefore, it is often used for hedging and quantitative trading.

3. Comparison of the Two

Cross Margin Mode: It is relatively less likely to experience liquidation during low leverage and volatile markets. However, when facing significant market events or when trading cannot occur due to uncontrollable factors, it is very likely that all funds in the account will be wiped out.

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, a single position can easily lead to liquidation and losses.

Example:

A and B both use 2000 USDT with 10x leverage to long 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 7000 USDT.

If BTC suddenly drops to 8000 USDT, A's account loses 1000 USDT margin and is forcibly liquidated, losing 1000 USDT, with 1000 USDT remaining.

Meanwhile, B using cross margin mode, after losing 1000 USDT, still has the long position.

If the price rebounds at this moment, B may turn losses into profits. However, if the price continues to drop, B may lose the entire 2000 USDT.