Recently, I’ve noticed that many beginners have a somewhat fuzzy understanding of margin when trading contracts. Today, I want to discuss the differences between cross margin and isolated margin modes, which might help your trading.

Let's start with the most basic concept. When opening a position, you need to prepare margin, which will be locked in the position. Margin has two key indicators: one is the initial margin, the amount required to open a position; the other is the maintenance margin, which is the minimum requirement to keep the position alive. When your margin falls below the maintenance margin, the system will trigger a liquidation.

Currently, there are mainly two modes of contract trading in the market. In cross margin mode, all available funds in your account can be used as margin. What does this mean? It means that when your position incurs losses, the system will automatically replenish margin from your account balance until all available funds are used up. If that’s still not enough to meet the maintenance margin requirement, liquidation will occur. In this case, your risk and reward are combined; once losses exceed the entire account balance, you will be completely liquidated.

Isolated margin mode is different. The margin for each position is independent, and the system will not automatically add more. Unless you manually add more margin, if the position does not meet the maintenance margin requirement, it will be liquidated directly. The advantage of this is that your losses are limited to the margin of that specific position and won’t affect other funds in your account.

Let’s take a practical example to feel it out. Suppose you and a friend both have a $2,000 contract account, and you both open a 10x leveraged long BTC contract with $1,000. You choose isolated margin, and your friend chooses cross margin. If BTC’s price drops to the liquidation price, you lose $1,000 margin and get liquidated, leaving $1,000 in your account. Your friend, using cross margin, loses $1,000 but the system automatically replenishes margin, so the position remains open. If BTC then rebounds, he might turn losses into gains; but if the price continues to fall, he could lose the entire $2,000.

So, the advantage of cross margin is its strong loss resistance; it’s less likely to be liquidated in sideways markets, and it’s more convenient to operate. But the risk is that, in extreme market conditions or black swan events, the entire account could go to zero. Isolated margin requires you to actively manage your margin and strictly control the distance between the liquidation price and the mark price; otherwise, a single position can easily be liquidated.

Regarding risk calculation, here’s a formula: position margin equals position value divided by leverage, plus additional margin, minus reduced margin, plus unrealized profit and loss. The calculation of liquidation risk is: in cross margin mode, risk equals maintenance margin divided by position margin times 100%; in isolated margin mode, risk equals maintenance margin divided by available funds plus position margin times 100%. When risk reaches 70%, you usually get a warning; exceeding 100% triggers liquidation.

In simple terms, cross margin is suitable for traders with some experience who can handle larger fluctuations, while isolated margin is better for conservative traders or those who want precise risk control. The key is to choose based on your risk tolerance and trading style.