Cross Margin Versus Isolated Margin

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What is margin in crypto trading and how does it relate to leverage?

When trading with leverage, the term “margin” refers to the amount of capital required to enter a leveraged position. Initial margin refers to the minimum amount of margin required to enter a leveraged position, while maintenance margin refers to the amount required to prevent a position from being liquidated.

Cryptocurrency traders use different strategies when tradingwith margin — Margex provides traders with two margining methods that offer different advantages and disadvantages:

Isolated margin restricts the margin for a position to a dedicated margin pool defined by the trader. Should the margin fall below the maintenance margin level required to maintain an open position, the position will be liquidated.

Cross margin shares margin between all open positions that use the same settlement asset. Should a position require more margin, it will be drawn from the total balance of the relevant asset to prevent liquidation.

Understanding how each of these margining methods worksand how they differ from each other can assist traders in preventing the liquidation of open positions and promote more efficient use of trading capital.

How profit changes with leverage in the conditions cross margin trading

How much of your capital is used in the trade
Leverage used in the trade
1%
Price change*
3%
Price change*
5%
Price change*
10%
Price change*
20%
Price change*
Profit with leverage
Profit without leverage

Enter Crypto Markets

Margex is a Bitcoin-based derivatives trading platform that provides traders with the ability to trade up to 100x leverage across multiple global crypto markets. Offering a highly user-friendly interface and best-in-class trading features, Margex is ranked as one of the best crypto margin trading exchanges online by Finance Magnates.

User Convenience in Every Aspect

Margex delivers simplified, easy-to-understand trading features that cater to novice and expert traders alike, with robust charting tools and clearly defined transparent fee structures. Trading on Margex provides traders with a high degree of visibility, as well as ROE tools that give an indication of the profitability of all trades.

Everything at a Glance

Transparency and clearly-defined analytics are heavily emphasized on Margex — all deal indicators, such as trading fees, financing, and PnL are delivered on-screen in real-time for all positions. Importantly, it’s possible to modify margin on open trades on Margex, as well as take advantage of simultaneous stop loss and take profit tools on a trade-by-trade basis.

Cross and Isolated in a Single Account

Unlike other trading platforms that require you to open separate accounts for different margin and collateral methods used in trades, Margex solves the cross margin vs. isolated margin debate by allowing platform users to use both methods in one account, from one trading terminal, which is convenient when trading.

Multilaterals Enabled

Collateral options on Margex include BTC, USDT, and ETH, as well as USDC, DAI, USDDP, Tron, and WBTC. It’s possible to trade any pair on Margex with any collateral, eliminating the need to swap assets. Lastly, Margex’s unique MP Shield technology leverages advanced artificial intelligence to protect users from price manipulation and prevent unfair liquidation.

Why Margex

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What is Cross Margin?

Cross margin, sometimes referred to as “spread margin,” shares the available balance of an asset across all relevant open leveraged positions in a trader’s account. The funds available in a trader’s available balance are used to avoid liquidation in open positions with the same settlement asset. Within the context of cross margin, an account is sufficiently margined if the collective maintenance margin requirements of all open positionsare lower than the available balance.

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Cross Margin Example

A trader with 0.1 BTC may choose to open a long (buy) cross margin position on BTC/USD at a price of $10,000/BTC, for 1 BTC. The initial margin requirements of this position is calculated usingthe maximum permissible leverage for the trading pair using cross margin, placing the initial margin requirement at 1% of 1 BTC. The trader will, therefore, need to stake 0.01 BTC in initial marginin order to open the position. Should the price of Bitcoin decline, the initial margin of the traderwill also decline. A cross margin position will draw from the total balance of the trader — in this case, 0.1 BTC — as additional margin.This practice allows traders to utilize the totality of their available funds to avoid liquidation

Pros and Cons of Cross Margin

ProsCons
Cross margin can be used to offset unrealized losses with unrealized profits, minimizing the probability of position liquidation
Cross margin places the entire available balance of a trader at risk — in the case of significant adverse market movements a trader may lose their entire balance should the market price of an asset challenge liquidation level
Cross margin reduces the overall probability of liquidation by taking a holistic approach to margin
Cross margin provides traders with less control over specific positions. Traders seeking to manage a position on an individual basis may use isolated margin to gain a greater degree of control
Cross margin is useful for traders seeking to hedge existing positions
Traders seeking to manage a position on an individual basis may use isolated margin to gain a greater degree of control
Pros
Cross margin can be used to offset unrealized losses with unrealized profits, minimizing the probability of position liquidation
Cross margin reduces the overall probability of liquidation by taking a holistic approach to margin
Cross margin is useful for traders seeking to hedge existing positions
Cons
Cross margin places the entire available balance of a trader at risk — in the case of significant adverse market movements a trader may lose their entire balance should the market price of an asset challenge liquidation level
Cross margin provides traders with less control over specific positions. Traders seeking to manage a position on an individual basis may use isolated margin to gain a greater degree of control
Traders seeking to manage a position on an individual basis may use isolated margin to gain a greater degree of control

Trading With Cross Margin on Margex

1

Open a Margex trading account

Go to Margex.com and click "Start Trading," then enter your personal information on the registration page.
2

Confirm your email

A confirmation email will be sent to your email address. Once you have successfully confirmed it, you can log in to your account.
3

Fund your trading account

Go to your account's "Wallet" page and fund your account using your preferred deposit method, such as cryptocurrency or direct credit card deposits.
4

Trade with Cross Margin

Go to the "Trade" page, select the pair you are going to trade from the list and after entering your preferred order size in the order submission window, go to the leverage slider and drag it all the way to the left where it is marked as cross margin, or just use the button.

What is Isolated Margin?

Isolated margin dedicates margin on an individual basis to each open position. A trader that opens a position with isolated margin must allocate a specific amountof margin either equal or greater to the initial margin required to open the position. In the context of isolated margin, the margin allocated by a trader to open a position is referred to as a position margin. Profit or loss generated by a position opened with isolated margin does not impact any other open positions. Isolated margin limits the liability of an open position to the initial margin defined by the trader. Unlike cross margin, any available balance available to a traderis not used to balance the margin of an open position.

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Isolated Margin Example

A trader may choose to open a long BTC/USD position with BTC price of $10,000. The total balance held on Margex by the traderis 0.01 BTC, so the trader opens an isolated margin BTC/USD position for 1 BTC with 100x leverage. The initial margin required to open the trade must be staked in order to open the position — unlike cross margin, however, the trader defines the margin balance they would like to assign to the positionby either increasing or decreasing the leverage used in the trade. Should the price of Bitcoin decline to a value that would liquidate the position, the position will be automatically liquidated as an isolated margin position will not draw more funds from the total balanceof the trader in order to keep the margin requirementsof the position afloat. In this case, the trader must manage the amount of margin assigned to an open position but only risks the initial margin assigned when opening the position, not their entire account balance.

Pros and Cons of Isolated Margin

ProsCons
Isolated margin provides traders with a greater degree of control over individual traders and is suitable for speculative trades opened with high leverage
If unrealized losses reduce the position margin of an isolated margin position, the position will be liquidated regardless of the total balance of a trader’s account
While isolated margin positions expose traders to higher liquidation risk, only the position margin defined by the trader is exposed to risk — not the trader’s entire account balance
Isolated margin positions expose traders to higher liquidation risk
The isolated margin amount for an open position can be managed — a trader can prevent liquidation by allocating additional margin
Isolated margin positions must be carefully managed
Pros
Isolated margin provides traders with a greater degree of control over individual traders and is suitable for speculative trades opened with high leverage
While isolated margin positions expose traders to higher liquidation risk, only the position margin defined by the trader is exposed to risk — not the trader’s entire account balance
The isolated margin amount for an open position can be managed — a trader can prevent liquidation by allocating additional margin
Cons
If unrealized losses reduce the position margin of an isolated margin position, the position will be liquidated regardless of the total balance of a trader’s account
Isolated margin positions expose traders to higher liquidation risk
Isolated margin positions must be carefully managed

Trading With Isolated Margin on Margex

To open a trade using isolated margin, you need to go to your Margex trading account, select the pair you will trade, go to the leverage slider and drag it to select the preferred leverage for the trade. You can also use the small pen next to the slider to manually enter your preferred margin on the trade, ranging from 5x to 100x for all pairs. Once you select your preferred leverage, you can enter your order size. Note that the order size you enter is already leveraged, meaning that the leverage you selected above is already accounted for in the trade.

Cross Margin vs. Isolated Margin. What to choose?

Cross margin and isolated margin offer different advantages and disadvantages that vary based on the trading strategy employed by the user. In general terms, cross margin is a straightforward approach that can be employed by novice traders or traders seeking to offset unrealized losses with unrealized profits, while isolated margin provides traders with a far greater degree of control over the amount of risk they are exposed to.

Cross MarginIsolated Margin
Offers a holistic approach to margin
Defines individual margin for each open position
Can increase the probability of liquidating entire the account balance of a trader
Reduces the risk of account balance liquidation
Offers simple margin management
Requires ongoing management
Suitable for novice traders
Suitable for speculative trades with high leverage
Cross Margin
Offers a holistic approach to margin
Can increase the probability of liquidating entire the account balance of a trader
Offers simple margin management
Suitable for novice traders
Isolated Margin
Defines individual margin for each open position
Reduces the risk of account balance liquidation
Requires ongoing management
Suitable for speculative trades with high leverage
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Сhoosing the right leverage

The effective leverage of an open position in cross margin vs. isolated margin can be calculated by comparing the maximum possible loss of a position compared to the value of the trader’s position. In the case of a cross margin position with unrealized profit, for example, the effective leverage is equal to the position value divided by the position margin combined with the trader’s available balance and unrealized profit. Cross margin positions can transfer loss across a trader’s entire balance. In the case of a cross margin position with unrealized loss, the effective leverage is equal to the position value divided by the position margin combined with the available balance. Higher effective leverage increases the risk of liquidation, as the liquidation price range closer to the mark price.

Frequently Asked Questions (FAQ)

What is cross margin?

Cross margin shares the entire available balance of a trader’s account across all open positions in the account. A trader’s account is adequately margined if the collective margin requirements of all open positions are lower than the trader’s available balance.

What is isolated margin?

Isolated margin allows traders to define an individual margin for each individual open position. A trader that opens an isolated position must allocate margin to the position that is equal to or greater to the initial margin.

What is the difference between cross margin and isolated margin?

Cross margin draws from the entire balance of a trader’s account to maintain margin across all open positions, while isolated margin creates separate pools of margin for each open position.

Is it better to use a cross or isolated margin?

Cross margin is suitable for novice traders or traders seeking to hedge existing positions but can increase the likelihood of entire balance loss. Isolated margin is suitable for traders seeking to gain greater control over margin requirements or minimize the risk of entire balance loss.