In two minutes, 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, let's talk about what isolated margin and cross margin are!

1. Isolated Margin

The margin required for opening a position will be fixed as the margin for the contract.

When using the isolated margin model, positions can be held in both directions, and the risks of short and long positions are calculated independently. The margin and profits for each contract's dual positions will be calculated independently.

Advantages of Isolated Margin: Liquidation will only result in the loss of the position's margin, meaning that the amount of margin for the position is the maximum loss. You will only lose the margin amount of that directional position, which will not affect other funds in that contract account.

2. Cross Margin

All balances transferred to the contract account, and all profits and losses from contracts, will be treated as the margin for the contract. When using the cross margin model, the risks and profits of all positions in the account will be calculated together, and liquidation will only occur when the losses exceed the account balance.

Advantages of Cross Margin: The account can bear losses better, making it easier to operate and calculate positions, and it is often used for hedging and quantitative trading.

3. Comparison of the Two

Cross Margin: It is relatively not easy to be liquidated under low leverage and volatile markets, but when encountering significant market events or uncontrollable factors that prevent trading, it may lead to the account's entire funds being wiped out.

Isolated Margin: More flexible than the cross margin model, 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.

For example:

A and B both use 2000 USDT, with 10x leverage to long BTC/USDT contracts.

A uses the isolated margin model, occupying 1000 USDT margin, while B uses the cross margin model.

Assuming A's liquidation price is at 8000 USDT, and B's liquidation price is at 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 the cross margin model, loses 1000 USDT, but the long position remains.

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