Recently, a friend asked me about contract trading, which made me realize that many beginners are still a bit unclear about the concepts of cross margin and isolated margin. Instead of lengthy explanations, let’s break it down directly.

When trading contracts, you need to deposit margin to open a position, and this money will be locked in the position. There are two key concepts to understand about margin: the initial margin is the minimum amount needed to open a position, and the maintenance margin is the minimum level you must maintain during the holding period.

Currently, the mainstream modes are cross margin and isolated margin. I’ll start with cross margin. In this mode, all available funds in your account can be used as margin. If your position incurs a loss, the system will automatically top up the margin from your available account balance to restore it to the initial margin level. But if the available balance is exhausted and still doesn’t meet the maintenance margin requirement, a liquidation will occur. So, the characteristic of cross margin is that the risks and profits of multiple positions are combined; as long as there is remaining balance in the contract account, the positions can stay alive.

Isolated margin is completely different. Each position’s margin is independent, and the system will not automatically top up unless you manually add more. If a position falls below the maintenance margin requirement, it will be liquidated immediately. The advantage of this is that a liquidation of a single position only results in the loss of that position’s margin, without affecting other funds.

Here’s a practical example. Suppose you and I each have $2,000, and we each open a 10x leveraged long position on BTC with $1,000. I use isolated margin, and you use cross margin. When BTC drops to the liquidation price, I lose $1,000 in margin and get liquidated, leaving $1,000 in my account. But with cross margin, the system automatically tops up the margin, so the long position remains open. If BTC rebounds, you might turn around; but if it continues to fall, you could lose all $2,000.

So, the obvious advantage of cross margin is: strong loss resistance, simple operation, and less likely to be liquidated in choppy markets. But the downside is also significant: in extreme market conditions or black swan events, the entire account could go to zero. Isolated margin requires you to actively manage risk, manually add margin, and strictly control the distance between the liquidation price and the mark price; otherwise, a single position can be easily liquidated.

Regarding margin calculation, there’s a formula: Position Margin = Position Value / Leverage + Additional Margin - Reduced Margin + Unrealized Profit and Loss. The liquidation risk is calculated based on position margin and maintenance margin. When risk reaches 70%, platforms usually issue a warning; exceeding 100% triggers liquidation directly. The liquidation risk for isolated margin = (Maintenance Margin / Position Margin) × 100%, and for cross margin = (Maintenance Margin / (Available Balance + Position Margin)) × 100%.

Most platforms default to cross margin for beginners, and both modes support leverage adjustments, up to 100x. But note that when placing orders, you cannot switch between cross and isolated margin modes, nor change leverage. The choice of mode mainly depends on your risk tolerance and trading habits—there’s no absolute good or bad.