Traders who deal with contracts should all know about margin, but not many truly understand the difference between cross margin and isolated margin.

Simply put, there are two concepts of margin. The amount needed to open a position is called the initial margin, and the minimum amount required to maintain the position is called the maintenance margin. These two numbers determine when you will be liquidated.

Currently, contract trading mainly divides into two modes. In cross margin mode, all available funds in your account can be used as margin. If the position loses enough to reach the maintenance margin level, the system will automatically top up the margin from your account balance back to the initial margin. If the top-up is still insufficient to meet the maintenance margin, a liquidation will occur. What does this mean? Your risk and reward are combined; losses exceeding the total account balance will trigger liquidation.

Isolated margin is different. The margin for each position only applies to that position itself, and the system will not automatically top up. If the margin falls below the maintenance margin level, the position is liquidated directly. The advantage is that liquidation only loses the margin of that position and does not affect other funds in the account.

Here's a clear example. Suppose you and a friend both have 2000 USD, each using 1000 USD to open a 10x leveraged long position on BTC. You use isolated margin, and your friend uses cross margin.

When BTC price drops to the liquidation price, you lose your 1000 USD margin and get liquidated, leaving 1000 USD in your account. Your friend, using cross margin, after losing 1000 USD, the system automatically tops up the margin, and the long position remains. If BTC rebounds, he has a chance to turn the situation around; but if it continues to fall, the entire 2000 USD could be lost.

Therefore, the advantage of cross margin is stronger loss resistance, and it’s less likely to be liquidated in volatile markets. The downside is that during large market moves or black swan events, you could lose everything at once. Isolated margin requires you to manually add margin and strictly control the distance between the liquidation price and the mark price; otherwise, a single position can be easily liquidated.

Many platforms default users to cross margin mode. Both cross and isolated margin support leverage adjustments, usually up to 100x. Note that when placing orders, you cannot switch modes or change leverage.

Regarding calculations, the formula for position margin is: position value divided by leverage plus additional margin minus reduced margin plus unrealized profit and loss. The liquidation risk is calculated based on position margin and maintenance margin; the higher the value, the higher the risk. When risk reaches 70%, the platform will issue a warning; exceeding 100% triggers liquidation.

The liquidation risk for isolated margin equals the maintenance margin divided by the position margin times 100%. For cross margin, it equals the maintenance margin divided by available balance plus position margin times 100%.

In simple terms, cross margin is suitable for experienced traders who want to optimize capital efficiency; isolated margin is better for those who want to control individual position risk. The choice mainly depends on your risk tolerance and trading strategy.