Many newcomers to the crypto world are still unsure about the differences between Isolated and Cross Margin and do not understand their basic concepts. Today, let's discuss what Isolated Margin is and what Cross Margin is!

Cross Margin Mode

When opening a position, the required margin will be treated as the fixed margin for your contract position.

Using Isolated Margin Mode allows for bi-directional positions. The risks of short and long positions are calculated separately, and each contract's bi-directional positions will have their own margin and profit calculated individually.

Advantages of Isolated Margin Mode: If liquidation occurs, you will only lose the margin of your position. This means that the amount of your position margin is the maximum loss you may incur. You will only lose the margin amount for the direction of your position, and it will not affect other funds in this contract account.

Isolated Margin Mode

All the money you transfer to the contract account is counted in. Moreover, all profits or losses generated by contracts will be treated as the margin for the contract position. In Cross Margin Mode, the risks and rewards of all positions in the account are calculated together. Liquidation will only occur when your position loss exceeds the balance in your account.

Advantages of Cross Margin Mode: In this mode, your account has a stronger capacity to withstand losses, it is more convenient to operate, and it is easier to calculate positions, which is why it is often used in hedging and quantitative trading.

Comparison of the two

Cross Margin Mode: In low leverage and volatile markets, it is relatively less likely to be liquidated. However, if there is a significant market change or some uncontrollable factors that prevent trading, it can lead to the loss of all funds in your account.

Isolated Margin Mode: It is more flexible than Cross Margin Mode, but you must strictly control the gap between the liquidation price and the mark price. Otherwise, a single position can easily be liquidated, causing you losses.

For example:

A and B both put out 2000u, using 10x leverage to long the BTC/USDT contract.

A chose Isolated Margin Mode using 1000u as margin, while B used Cross Margin Mode.

Assuming A's liquidation price is at 8000u, and B's liquidation price is at 7000u.

If the price of BTC suddenly drops to 8000u, A's account will be forcibly liquidated due to a loss of 1000u in margin, resulting in a loss of 1000u for A, leaving them with 1000u.

B used the Cross Margin Mode and still holds his long position after losing 1000u. If the price rebounds at this point, B might recover the lost money. But if the price continues to fall, B could lose all of his 2000u.