Recently, a friend asked me how margin trading in contracts works, so I整理ed my thoughts and shared them with everyone.

When opening a contract position, you need to add margin, which will be locked in the position. There are two types of margin: initial margin, which is required to open the position, and maintenance margin, which is the minimum requirement to keep the position open. Simply put, when your position's loss drops to the level of the maintenance margin, you face the risk of being liquidated.

Currently, contract margin modes mainly include cross margin and isolated margin. I'll start with cross margin, which is also the default option on many platforms. Using cross margin, all available funds in your contract account can be used as margin. When the position incurs a loss, the system will automatically add margin from the available account balance, allowing your position to last longer. But conversely, if the loss exceeds the entire account balance, you will be liquidated, losing all the funds in your account. Under cross margin mode, the risks and profits of all positions are calculated collectively.

Isolated margin is different. The margin for each position is only used for that position, and the system will not automatically add margin. If the position cannot be maintained, it will be liquidated directly, but your loss is limited to the margin of that position and will not affect other funds in your account.

Here's a more intuitive example. Suppose users A and B each have $2,000, both using $1,000 to open a 10x leveraged long position on BTC. A uses isolated margin, B uses cross margin. When BTC drops to the liquidation price, A loses $1,000 in margin and gets liquidated, leaving $1,000 in the account. B, using cross margin, automatically adds margin, keeping the position alive. At this point, if BTC rebounds, B might turn losses into gains; but if it continues to fall, B could lose all $2,000.

So, the advantage of cross margin is its strong loss resistance, making it less likely to be liquidated in volatile markets, and it’s easier to operate. But the downside is clear: in the event of major market moves or sudden incidents, it could lead to the entire account being wiped out. Isolated margin requires manual management of margin, strictly controlling the distance between the liquidation price and the mark price; otherwise, a single position can be easily liquidated.

The calculation formula for position margin is: position margin = position value divided by leverage plus additional margin minus reduced margin plus unrealized profit and loss. The liquidation risk is calculated based on position margin and maintenance margin: at 70% risk, a warning is issued; exceeding 100% triggers liquidation. For isolated margin, liquidation risk equals (maintenance margin / position margin) × 100%. For cross margin, it equals (maintenance margin / available balance + position margin) × 100%.

Ultimately, cross margin is suitable for experienced traders who want to better utilize their funds; isolated margin is better for conservative players with controllable risk. Both modes have their pros and cons, and the choice depends on your trading style and risk tolerance.