· Concept: Each position has its own separate and independent margin. The maximum possible loss on that position is limited to the margin assigned to it.
· Operation:
1. You open a position (e.g., buy 1 contract of BTC) and deposit a specific margin (e.g., $1,000).
2. If the market moves against you and the unrealized losses consume that margin (or reach a predefined %, like 90%), the position is liquidated automatically.
3. The rest of your capital in the account (allocated to other positions) is untouched. One position cannot cause the liquidation of another.
· Advantages:
· Precise risk control: You know exactly how much you can lose on each trade.
· Protection against chain losses: An error in one asset does not drag down your entire account.
· Recommended for: Beginner traders, high-risk speculative strategies on a single asset, or when wanting to test new ideas without risking all account capital.
· Disadvantage:
· Lower capital efficiency: You need more total capital if you hold multiple positions, as each requires its own "isolated" collateral.
· Concept: All available balance in your futures account (the "wallet margin") is used as shared collateral for all open positions.
· Operation:
1. You have a common fund (e.g., $10,000) in your futures account.
2. You open multiple positions (e.g., long on BTC, short on ETH). All "share" the pool of $10,000 as collateral.
3. If one position has losses, it consumes margin from the common fund. If another position has gains, it contributes margin to the common fund.
4. A general liquidation only occurs if the total equity of the account (balance + P&L of all positions) falls below the required maintenance margin.
· Advantages:
· Maximum capital efficiency: Capital is used optimally, allowing for larger or more diversified positions with the same balance.
· Resistance to volatility: Temporary losses in one position can be offset by the margin from gains in another, preventing premature liquidations.
· Recommended for: Experienced traders, hedging strategies where correlated positions are held (e.g., long on one coin and short on another similar one), or to maintain long-term positions without the noise of daily volatility.
· Disadvantage:
· Risk of total account loss: One or more very losing positions can deplete the entire account balance, leading to a liquidation that affects all trades. The risk is not isolated.
Advice
· Always start with ISOLATED margin. It allows you to learn and manage risk in a controlled manner.
· Only consider using CROSS margin when you have a defined strategy and fully understand that you are betting your entire futures balance as collateral.
