Anyone looking to deeply understand contract trading must not overlook the concept of margin. It’s not complicated; it’s the funds you need to lock in when opening a position, and there are two types: initial margin (the amount required to open a position) and maintenance margin (the minimum required to keep the position).

The most critical part is choosing the margin mode. There are two approaches: cross margin and isolated margin, and the difference is significant.

Let me start with the cross margin mode. With cross margin, all available funds in your contract account can be used as margin. If your position starts to lose close to the maintenance margin level, the system will automatically top up your margin from your available funds to bring it back to the initial margin. It sounds protective, but the risk is here—if your losses exceed your total account balance, you will be liquidated. In other words, in cross margin mode, the profits and losses of all positions are combined.

Isolated margin is completely different. Each position’s margin is independent, and the system will not automatically add funds—you have to do it manually. This means that if a single position gets liquidated, you only lose that position’s margin, not your other funds. The trade-off is that you need to manage risk more carefully, always paying attention to the distance between the liquidation price and the mark price.

Here’s an example to make it clear. Suppose you and a friend both have $2,000, each using $1,000 to open a 10x leveraged long position on BTC. You choose isolated margin, and your friend chooses cross margin. When BTC drops to the liquidation price, you get liquidated directly, losing $1,000, leaving your account with $1,000. But your friend, using cross margin, the system automatically replenishes the margin after losing $1,000, so the position remains open. If BTC rebounds, he can turn losses into gains; but if it continues to fall, he might lose all $2,000.

So, the advantage of cross margin is its strong loss resistance—it’s less likely to be liquidated in volatile markets, and operations are relatively simpler. But in extreme market conditions or black swan events, cross margin could lead to the account going to zero. Isolated margin requires active management—you need to decide when to add margin yourself. It demands more from traders but limits risk to individual positions.

As for how to calculate position margin, here’s the formula: Position Margin = Position Value ÷ Leverage + Additional Margin - Reduced Margin + Unrealized Profit and Loss.

Finally, let’s talk about liquidation risk. The higher this indicator, the greater the risk. For isolated margin, it’s calculated as: Maintenance Margin ÷ Position Margin × 100%. For cross margin, it’s: Maintenance Margin ÷ (Available Funds + Position Margin) × 100%. When the risk reaches 70%, you usually get a warning; exceeding 100% triggers liquidation.

Choosing between cross and isolated margin is essentially a trade-off between convenience and risk control. Beginners might prefer isolated margin because it has a clear risk cap; experienced traders might prefer cross margin for greater flexibility. But regardless of the choice, the most important thing is to understand what risks you are taking on.