Differences between Cross and Isolated Margin Trading!!
Before entering any new market, you should know everything inside out without any doubt. A very basic question I couldn't answer or figure out was 'What's the difference between Cross and Isolated Margin??" I spent a couple of hours researching but nowhere could I find a proper explicit basic answer for both, after which I finally had a breakthrough. Thought I'd put it here in as simple words as possible in order to make it easily accessible for everyone.
Isolated Margin Trading:
Isolated margins are a great strategy to take a risky position without losing your prized assets in the process. This allows you to open a single position that is quite literally isolated from your other accounts. Whatever happens within this isolated margin position will never affect your remaining portfolio.
A good isolated margin example is taking a chance on a new cryptocurrency or betting on a high-risk price variance on the established market like $AEVO . In both cases, it is wise not to put all your eggs in one basket. Utilizing an isolated margin account will give you a chance to take this risk and acquire the desired leverage without compromising anything else.
Cross Margin Trading:
Conversely, we have a cross-margin mode that flips the concept entirely. Imagine that you already have a list of margin positions and are interested in pursuing one more. However, your margin requirements have become too steep, and it’s almost impossible to cover the initial margin and maintenance margin assigned to your position. So, what do we do in this case? Do we halt our trading efforts for the foreseeable future? No.
With cross margin mode, traders can consolidate their positions with a unified margin balance. Simply put, if you have ten different positions using the cross margin mode, they have a shared margin balance. This option allows traders to add new portfolio positions without seeking significant liquidity.
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