Many partners have just entered the circle and don't know the difference and basic concepts between isolated margin and cross margin. Today, I will talk about what isolated margin and cross margin are!
1. Isolated Margin Mode
The margin required when opening a position will be used as the fixed margin for the contract's position.
When using the isolated margin mode, two-way positions can be held. The risk of short positions and long positions are calculated independently. The two-way positions of each contract will independently calculate their margin and profit.
Advantages of isolated margin mode: Liquidation will only lose the position margin, that is, the amount of the position margin is the maximum loss. Only the margin amount of the position in that direction will be lost, and other funds in the contract account will not be affected.
2. Cross Margin Mode
All the balance transferred into the contract account, and all the profits and losses generated by the contract will be used as the margin for the contract's position. When using the cross margin mode, the risks and returns of all positions in the account will be calculated together. Liquidation will only occur when the position loss exceeds the account balance.
Advantages of cross margin mode: The account has a strong ability to withstand losses, which is convenient for operating and calculating positions, so it is often used for hedging and quantitative trading.
3. Comparison between the two
Cross margin mode: It is relatively not easy to liquidate under low leverage and oscillating market conditions, but if you encounter major market conditions, or some uncontrollable factors prevent trading, it is very likely that all the funds in the account will be zeroed.
Isolated margin mode: It is more flexible than cross margin mode, but it is necessary to strictly control the distance between the liquidation price and the mark price, otherwise a single position can easily be liquidated and cause losses.
Example:
A and B simultaneously use 2000u and 10x leverage to go long on BTC/USDT contracts.
A uses isolated margin mode, occupying 1000u margin, and B uses cross margin mode.
Assume that A's liquidation price is 8000u, and B's liquidation price is 7000u.
If BTC suddenly falls to 8000u, A's account loses 1000
u margin, and is forcibly liquidated, losing 1000 u, leaving 1000u.
And B uses cross margin mode, after losing 1000u, the long position is still there,
At this time, if the price rebounds, B may turn a profit, but if
The price continues to fall, and it is possible to lose all 2000u

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