Traders dealing with contracts can often get a bit confused about margin, especially in the early stages. The core concept is simple: when you open a position, you need to pay margin, which locks in that amount of money. But margin is divided into two types — the initial margin required to open a position, and the maintenance margin, which is the minimum amount needed to keep the position open.

Currently, there are two modes for contracts: cross margin and isolated margin. I'll start with isolated margin because it's more straightforward. In isolated margin mode, your margin only applies to the current position, and the system won't automatically add more unless you do it manually. If your position falls below the maintenance margin level, it will be liquidated immediately. What's the benefit? Losses are limited to the margin of that single position, so other funds in your account are unaffected. In other words, the maximum loss in isolated margin mode is the margin you invested, giving you peace of mind.

Cross margin works differently. All available funds in your contract account can be used as margin. When your position's loss drops to the maintenance margin level, the system will automatically add margin from your available account balance to bring it back up to the initial margin level. It sounds like a safety net, but the risk is here — if the market continues to move unfavorably, the system could use all the funds in your account.

Here's an example to clarify. Suppose you and a friend both have $2,000, and each uses $1,000 with 10x leverage to go long on BTC. You choose isolated margin, and your friend chooses cross margin. If BTC drops to the liquidation price, you lose $1,000 and get liquidated, leaving your account with $1,000. What about your friend? After losing $1,000, the system automatically adds margin, so the position remains open. If BTC rebounds, they might turn a profit; but if it keeps falling, their entire $2,000 could be wiped out.

So, the advantage of cross margin is its strong loss resistance — it’s less likely to get liquidated in volatile markets, and operations are simpler. But during major market moves or black swan events, a small mistake could wipe out the entire account. Isolated margin requires you to be more proactive, manually adding margin and strictly controlling the distance between the liquidation price and the mark price; otherwise, a single position can be easily liquidated.

Regarding liquidation risk, there's a formula: position margin equals position value divided by leverage plus additional margin minus reduced margin plus unrealized P&L. When the risk coefficient reaches 70%, you'll get a warning; exceeding 100% triggers liquidation. Specifically, the liquidation risk in isolated margin is (maintenance margin / position margin) × 100%, while in cross margin, it's (maintenance margin / available balance + position margin) × 100%.

Most platforms default to cross margin, supporting leverage adjustments up to 100x in both modes. But there's a detail to watch out for — when placing orders, you can't switch modes or change leverage, so avoid that pitfall.

In summary, isolated margin suits traders with strong risk awareness who want precise control over individual positions. Cross margin is better for those who want to leverage their entire fund pool to withstand volatility and are willing to accept higher risk. There’s no absolute good or bad — it depends on your trading style and risk tolerance.