Recently, I’ve noticed many beginners are confused about the concept of margin when trading contracts, especially between cross margin and isolated margin modes. Some just pick one and use it, only to end up losing money inexplicably. Today, I’ll explain this thoroughly to help everyone avoid pitfalls.

First, let’s start with the basics: opening a position requires margin, which is locked in the position. But margin has two meanings: one is the initial margin needed to open the position, and the other is the minimum maintenance margin level to keep the position open. Confusing these two concepts can lead to problems later.

Currently, there are mainly two modes of contract trading. In cross margin mode, all available account balance can be used as margin. Simply put, all your funds are pooled together to support your positions. If a position loses enough to reach the maintenance margin level, the system will automatically add margin from your account. But if even after adding margin, the position still doesn’t meet the maintenance margin requirement, it will be forcibly liquidated. So, in cross margin mode, all your positions’ risks and profits are combined. As long as your total account balance is exceeded by losses, your account will be liquidated.

Isolated margin mode is completely different. The margin for each position is only used for that specific position, and the system will not automatically add margin. You need to manually add margin if needed. If a position falls below the maintenance margin level, the system will forcibly liquidate just that position. The advantage is that a liquidation of one position only results in the loss of the margin you allocated to that position, without affecting other funds.

Let’s look at a practical example to clarify. Suppose you and a friend each have $2,000, and both open a 10x leverage long position on BTC with $1,000. You choose isolated margin, and your friend chooses cross margin. If BTC drops to the liquidation price, you lose $1,000 and get liquidated, leaving your account with $1,000. But your friend’s position, using cross margin, will have the system automatically add margin after losing $1,000, so the position remains open. If BTC then rebounds, he might break even; but if it keeps falling, he could lose the entire $2,000.

So, which mode to choose depends on your trading style. Cross margin mode offers stronger loss resistance and is less likely to get liquidated in volatile markets, and it’s simpler to operate. But the downside is that during black swan events or major market swings, your entire account could be wiped out at once. Isolated margin requires you to actively manage each position, manually add margin, and carefully control the distance between the liquidation price and the mark price; otherwise, a single position can be quickly liquidated.

Regarding how margin is calculated, here’s a formula:
**Position Margin = (Position Value / Leverage) + Additional Margin - Reduced Margin + Unrealized P&L**
Calculating liquidation risk is also crucial. In isolated margin mode, the liquidation risk = (Maintenance Margin / Position Margin) × 100%. In cross margin mode, it’s = (Maintenance Margin / (Available Balance + Position Margin)) × 100%. When risk reaches 70%, the platform will give a warning; exceeding 100% will trigger forced liquidation.

Honestly, both cross and isolated margin modes have their uses. The key is to choose based on your risk tolerance and trading strategy. Beginners are advised to start with isolated margin, as losses are more controllable; after gaining experience, you can consider the flexibility of cross margin trading.