Isolated margin mode and cross margin mode are two common margin modes in futures trading. Each mode has distinct features and applicable scenarios.
1. What is Isolated Margin Mode?
1.1 Definition
In Isolated margin mode, a certain amount of margin is allocated to a single position so the risk is segregated from other positions. In the event of forced liquidation, the trader will only lose the entire margin of that position. Users can manually or automatically add margin to reduce the liquidation risk of a single position.
1.2 Applicable Scenarios
1. Beginners or risk-averse traders: The crypto market is highly volatile. Beginners may easily get liquidated due to sudden price swings. Isolated margin mode limits losses to a single position, protecting other funds in the account.
Example: A trader uses 100 USDT in isolated margin mode to trade BTC futures. Even if liquidated, only 100 USDT is lost.
2. Multi-token or multi-strategy trading: Suitable for traders dealing with multiple cryptocurrencies (e.g., BTC, ETH, SOL) or different strategies (e.g., short-term, long-term, arbitrage). Each position is managed independently.
Example: Going long on BTC while shorting ETH. Isolated margin mode prevents one loss from affecting the other position.
3. High volatility or black swan events: In the crypto market, high-risk assets (such as LUNA) or black swan events (like the crash on March 12, 2020) often trigger one-sided market trends. In such extreme cases, isolated margin mode confines risk to one position, protecting the rest of the account.
Example: In the LUNA crash, cross margin mode uses all account funds as shared margin, which may lead to total loss. Isolated margin mode limits the loss to the specific position without affecting other positions.
4. Small accounts or experimental trading: Ideal for traders with limited capital who want to test new tokens or strategies with minimal risk.
Example: When trying futures trading on a new token, only a small margin is allocated. Even sharp price moves won’t endanger the entire account.
5. High-leverage short-term trading: Suitable for short-term swing trading or high-leverage (e.g., 50x, 100x) operations. Risk isolation allows traders to split positions without excessive loss.
Example: Trading BTC futures using 5-minute charts. Isolated margin mode ensures each position’s risk is separate, avoiding excessive loss.
6. Precise risk management:For traders who want exact control over per-trade risk, especially when using leverage cautiously.
Example: Allocating a fixed percentage of account equity (e.g., 5%) per trade to ensure controlled risk.
1.3 Advantages of Isolated Margin Mode
1. ndependent Positions: Each position’s PnL does not affect others. A liquidation of one position won’t jeopardize the overall account security.
2. Flexible Asset Management: Each position can be managed independently. Traders can adjust margin levels based on the risk of each position, offering more flexibility in fund management.
1.4 Isolated Margin Mode Example
A perpetual futures account has 1,000 USDT. The user selects isolated margin mode, uses 100 USDT as margin, and opens a 1000 USDT position with 10x leverage. If the market moves and triggers liquidation, only 100 USDT is lost (excluding fees).
II. What is Cross Margin Mode?
2.1 Definition
In the cross margin mode, all positions of a particular asset share the same margin. In the event of forced liquidation, the trader may lose the entire margin of that particular asset and all positions sharing the same margin.
2.2 Applicable Scenarios
1. High leverage for high returns: In high-leverage trading, cross margin mode uses all account funds to withstand volatility, reducing liquidation risk. Profits can be reinvested to open more positions, allowing traders to “ride out” short-term pullbacks and capture larger gains.
Example: Using 100x leverage to long ETH. Cross margin mode supports larger positions with full account equity.
| The key to high returns is “position sustainability.” Cross margin mode doesn’t increase initial returns but enhances final profit potential by extending holding time and resisting volatility. Isolated margin mode focuses on risk isolation but has lower capital efficiency and may lead to premature liquidation. In a smooth bull market, both perform similarly. But since 99% of crypto trades involve volatility, cross margin mode has an advantage. Additionally, unrealized profits under the cross margin mode can be used to open new positions automatically, while isolated margin mode requires manual adjustment, often too slow in fast-moving markets. |
2. Long-term trend trading: Suitable for traders confident in long-term market trends (e.g., bullish on BTC or ETH). Cross margin mode reduces liquidation risk from short-term fluctuations.
Cross margin mode benefits from dynamically shared margin buffering. All account funds (including unrealized profits) help withstand price swings, extending position “survival time” during volatility. This is especially useful in crypto’s oscillating markets or for long-term holdings, improving position survival rates and reducing liquidation risk.
3. Hedging in high-volatility markets: In cross margin mode, hedging benefits from shared account funds and dynamic management. All account equity (available balance + unrealized PnL) serves as shared margin, unlike the isolation in the isolated margin mode.
In hedging, profits and losses from long and short positions in the same pair offset each other, reducing overall account volatility and sharing the same estimated liquidation price. Cross margin mode dynamically adjusts margin, lowering liquidation risk from one-sided moves.
2.3 Advantages of Cross Margin Mode
1. High capital efficiency: All available balance (including unrealized profits and other funds) serves as shared margin. Profits can be used to open more positions, improving capital utilization.
2. Simple operation: No need to allocate margin per trade; flexibility in margin distribution.
3. Strong resistance to volatility: If one position has floating losses, other funds in the account automatically supplement margin, reducing liquidation probability.
2.4 Cross Margin Mode Example
A perpetual futures account has 1,000 USDT. The user opens a futures position with 100 USDT in the cross margin mode. Since all account balance is used as position margin, liquidation would result in a loss of 1,000 USDT.
Note: In cross margin mode, during extreme market conditions, significant losses in one currency may lead to a total loss of that currency across the entire account.
