Traders involved in contract trading know that when opening a position, you need to pay margin, which will be locked in the position. Margin has two concepts: initial margin (required to open a position) and maintenance margin (the minimum requirement to keep the position).

Currently, there are mainly two modes: cross margin and isolated margin. I think understanding the difference between these two is especially important for risk management.

In cross margin mode, all available funds in your account can be used as margin. If the position loses enough to only have the maintenance margin left, the system will automatically add margin from the available balance to return to the initial level. If the funds are exhausted and still not enough to meet the maintenance margin, it will be liquidated directly. The advantage of this mode is strong loss resistance; the position can last longer and is less likely to be liquidated in volatile markets. But the risk is also high—if the market moves to an extreme, your entire account balance could be wiped out.

Isolated margin mode is different. The margin for each position is only used for that position itself, and the system will not automatically add margin unless you do it manually. If the margin falls below the maintenance level, it will be liquidated immediately. The benefit is that losses are capped; you only lose the margin of that specific position and it won't affect other funds in your account. The downside is that you need to manage it actively, strictly controlling the distance between the liquidation price and the mark price; a small mistake could easily lead to liquidation of a single position.

Here's an example. Suppose you and a friend each have $2,000, and you both open a 10x leveraged long position on BTC with $1,000 margin. You use isolated margin, he uses cross margin, both with an initial margin of $1,000. When BTC drops to the liquidation price, you lose $1,000 and get liquidated, leaving you with $1,000. He uses cross margin; after losing $1,000, the system automatically adds margin, 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.

Most platforms default to cross margin mode. Both cross and isolated margin modes allow leverage adjustment, with a maximum of 100x. Note that when placing orders, you cannot switch modes or change leverage.

Regarding margin calculation, there is a formula: Position Margin = Position Value / Leverage + Additional Margin - Reduced Margin + Unrealized P&L.

The liquidation risk is calculated based on position margin and maintenance margin; the higher the value, the greater the risk. Platforms generally issue a warning at 70%, and liquidation is triggered at over 100%. Specifically, the liquidation risk for isolated margin = (Maintenance Margin / Position Margin) × 100%, and for cross margin = (Maintenance Margin / (Available Balance + Position Margin)) × 100%.

My suggestion is that if you're a beginner using small leverage, you might consider the convenience of cross margin. But once you increase leverage or the market becomes volatile, isolated margin gives you more control over risk, although it requires more precise management. At least, it prevents a single mistake in one position from risking your entire account.