Recently, I’ve seen many beginners making mistakes in contract trading, mainly because they don’t fully understand margin and position modes. I’ll organize my experience here, hoping it’s helpful to everyone.

When trading contracts, the first thing to understand is: opening a position requires margin, which will be locked in the position. There are two types of margin: initial margin, which is paid when opening a position, and maintenance margin, which is the minimum amount that must be maintained during the holding period. If it drops below this minimum, liquidation will occur.

There are two modes for contracts: cross margin and isolated margin. Choosing the right one is really crucial.

In cross margin mode, all available funds in your account can be used as margin. When the position incurs a loss, the system will automatically top up the margin from your account balance, continuing until it reaches the level of the initial margin. If there isn’t enough money to top up, liquidation will be executed. The advantage of this mode is strong risk resistance; profits and losses of all positions are combined, so a loss in one position can be offset by gains in another. But the risk is also here—if the market turns sharply, your entire account balance could be wiped out.

Isolated margin mode is different. Each position’s margin is independent, and the system will not automatically add margin unless you do it manually. If a position is liquidated, only that position’s margin is lost; your other funds in the account are unaffected. This makes risk management more controllable, but the cost is that you need to monitor the liquidation price yourself; if you’re not careful, you could be liquidated unexpectedly.

Let’s clarify with an example. Suppose you and a friend both have $2,000, and you each open a 10x leveraged long position on BTC with $1,000. You use isolated margin, and he uses cross margin. When BTC drops to the liquidation price, you lose $1,000 and get liquidated, leaving $1,000 in your account, with the loss locked in. He, using cross margin, will have the system automatically top up the margin after losing $1,000, so his position remains open. If BTC rebounds, he might turn a profit, but if it continues to fall, he could lose all $2,000.

From a practical perspective, cross margin mode is more beginner-friendly, as it doesn’t require frequent manual adjustments, and leverage is flexible. But in major market moves, the risk concentration in cross margin is high. Isolated margin requires more active management—adding margin manually, strictly controlling liquidation distance—but the loss in a single position is isolated.

Regarding risk calculation, there’s a formula worth remembering: position margin equals position value divided by leverage plus any additional margin you add minus the reduced margin plus unrealized profit and loss. The liquidation risk can be measured by the ratio of maintenance margin to the current margin; the higher the ratio, the higher the risk. The liquidation risk for isolated margin is (maintenance margin / position margin) × 100%, and for cross margin, it’s (maintenance margin / available balance + position margin) × 100%. When the ratio reaches 70%, a warning is issued; exceeding 100% results in immediate liquidation.

My advice is: if you’re still learning, first understand the logic of both cross and isolated margin modes, then choose based on your risk tolerance. For more conservative trading, use isolated margin; if you’re willing to accept higher risk for greater potential gains, try cross margin. But regardless of your choice, remember one thing: higher leverage means higher risk. Never open a position with all your funds.