Cross margin and Isolated margin: Differences explained

When trading with leverage, there are generally 2 main margin systems used by traders - Isolated Margin and Cross Margin.

Let’s take a look at the key differences.

Isolated Margin is a margin system which allows traders to use an exact amount of personal funds - i.e. Margin - in a trade.

Let’s take a look at an example of a trade using an Isolated margin system.

Let’s assume a trader has a Total Wallet balance of $1,000

The trader opens a position of $10,000 with x100 leverage. This means that $100 ($10,000/100) of the trader’s personal funds (Margin) has been reserved for this trade, leaving the trader with an Available Wallet Balance of $900.

If the market moves in the direction of the trade, the trader can close the position, and all unrealized P/L will be locked in and added to the trader’s Wallet balance.

In the case of the market moving against the open position, any potential losses will be limited to the margin reserved for the trade ($100 in this example) and cannot exceed this amount, This in turn also makes it possible for an estimated liquidation price to be provided.

In other words, the key aspects of an isolated margin system are:

• The ability to select an exact amount of margin used in each separate trade (as opposed to a Cross-margin system)
• The ability to select an exact leverage
• The possibility of an estimated liquidation price being provided
• If an open position is liquidated, other open positions will not be affected

Cross Margin is a margin system which allows traders to utilize their whole wallet balance, including all unrealized PnL of open positions as margin.

Essentially, this means that all the margin of unrealized winning and unrealized losing open cross-margin trades is shared. This way your winning trades can cover the margin requirements for your losing trades.

This margin method extends the resilience of losing positions by spreading the available margin in your account across all open cross-margin positions, allowing your losing trades to stay open longer and potentially turn profitable.

Let’s take a look at an example of a trade using a Cross margin system.

Let’s assume a trader has a Total Wallet balance of $1,000

The trader opens a position of $10,000 with x100 leverage. This means that $100 ($10,000/100) of the trader’s personal funds (Margin) has been reserved for this trade.

If the market moves in the direction of the trade, the Unrealized P/L of this trade is automatically added to the trader’s Available Balance, and can be further used as Margin to open new positions or cover any losses incurred from other open positions.

If the market moves against the trader’s open position, it will automatically draw margin from the Available Balance of the corresponding settlement currency to avoid liquidation.

When utilizing Cross margin it is important to keep in mind that margin is shared between all open positions with the same settlement currency. This means that if margin level drops to or below 10%, the cross margin position with the same collateral currency that currently holds the highest loss will be automatically closed at market.

In other words, the key aspects of a Cross margin system are:

• Margin can be drawn from the Available balance of the corresponding margin currency to prevent liquidation (as opposed to an Isolated margin system)
• Cross-margin positions with the same collateral currency share a combined P/L and ROE
• If cross margin level drops to or below 10% (<10%), the cross-margin position for the corresponding margin currency, with the highest loss, will be immediately closed at market price

Cross Margin positions (unlike isolated margin) share a combined P/L and ROE.. This means that upon being filled, all cross margin orders which share the same trading pair, market side (long/short) and margin currency - will be combined into one position.

For example, in the screenshot below - the initial size of the BTC/USD position is $140:

When another order, sharing the same trading pair(BTCUSD), market side (Buy) and margin currency(BTC), is executed - it is immediately combined with the already existing position, resulting in the initial position size becoming $150, with the ROE, open price as well as realized and unrealized PnL being affected accordingly:

It is important to keep in mind that cross margin positions use the entire available balance of the corresponding currency as margin:

Available balance will be affected by deposits/withdrawals, the amount of margin reserved in open positions and pending orders, as well as realized and unrealized P/L of open cross-margin positions.

If margin level drops to or below 10%, the cross margin position (with the same corresponding margin currency) with the highest Loss will be immediately stopped out (liquidated) and closed at market.

When using cross margin it is strongly recommended to utilize protection Stop Loss and Take Profit orders to minimize risks of liquidation and lock in profits automatically.

The Cross Margin Level indicator on the Trade page reflects the current state of available margin remaining until margin call (i.e. liquidation). The more available margin remains - the lower the indicator - and vice versa - if available balance decreases the indicator will begin to fill up accordingly:

Clicking the ‘More’ button will provide additional info about the current state of available margin remaining for your cross-margin positions: