1. Cross margin mode
In cross margin mode, all available funds in the contract account are treated as available margin, and liquidation will only occur when losses exceed the account balance.
Advantages:
The account has a strong ability to bear losses, making it easier to operate and calculate positions, thus commonly used for hedging and quantitative trading.
2. Isolated margin mode
In isolated margin mode, users can hold positions in both directions, with short and long position risks calculated independently.
User liquidation only results in the loss of margin, meaning the amount of margin is the user's maximum loss.
When a user actively closes a position, the losses and profits generated from short and long positions will be immediately settled into the corresponding position's margin.
Advantages:
If affected by price fluctuations, when the user's position is liquidated, they will only lose the amount of margin for that direction and will not affect other funds in the contract account.
For example:
A and B both use $2000 with 10x leverage to long BTC/USDT contracts.
A uses isolated margin mode, occupying $1000 margin, while B uses cross margin mode;
Assuming A's liquidation price is $8000 and B's liquidation price is $7000;
If BTC suddenly drops to $8000, A's account loses $1000 margin and is forcibly liquidated, losing $1000, with $1000 remaining.
While B uses cross margin mode and loses $1000, their long position still exists. If the price rebounds at this time, B may turn losses into profits, but if the price continues to drop, they may lose the entire $2000.
The above content explains in detail whether beginners should choose cross margin or isolated margin for trading contracts. Generally, in terms of account fund usage, cross margin mode uses all account funds as margin shared across multiple contract positions, while isolated margin mode calculates margin for each position separately, with profits and losses not affecting each other. It can be understood that cross margin is like putting all eggs in one basket, while isolated margin spreads eggs across multiple baskets.
