Checklist for Contract Beginners: What is the Difference Between Isolated Margin and Cross Margin?
Users who understand contract trading know that when opening a contract position, margin needs to be added, which is used and locked by the position. There are two concepts of margin: Initial Margin and Maintenance Margin, where Initial Margin refers to the margin required at the time of opening a position, while Maintenance Margin is the minimum margin level required to maintain the current position.
In cross margin mode, all available balance in the user's contract account can be used as margin for the current position. When the position's margin loss reduces to only the Maintenance Margin, the system will automatically add margin from the available balance in the contract account to the Initial Margin; if the total available margin after addition still does not reach the Maintenance Margin level, no more margin will be added, and a liquidation process will be executed. Therefore, in cross margin mode, the risks and rewards of all positions in the contract account will be calculated together, and liquidation will only occur when the position loss exceeds the contract account balance.
In isolated margin mode, the user's position margin is only used for the current position. Unless the user manually adds margin, the system will not add it. When the position cannot reach the Maintenance Margin level, the system will execute the liquidation process. Therefore, under isolated margin mode, the user's liquidation will only result in the loss of the current position margin; in other words, the amount of position margin is the user's maximum loss and will not affect other funds in the contract account.
Let’s illustrate with an example:
Users A and B both have 2000 USDT in their contract accounts, and they each use 1000 USDT to open a long BTC/USDT contract with 10x leverage, where A uses isolated margin mode and B uses cross margin mode, with an Initial Margin of 1000 USDT:
Suppose the BTC price drops to the liquidation price; user A loses 1000 USDT margin and is forcibly liquidated, resulting in a loss of 1000 USDT, leaving 1000 USDT remaining in the contract account. Meanwhile, B, using cross margin mode, loses 1000 USDT, and the system automatically adds margin, keeping the long position open. If the BTC price rebounds at this point, B may turn the loss into a profit, but if the price continues to drop, they may lose all 2000 USDT in their contract account.
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