Introduction
Margin trading allows traders to borrow funds to amplify position size, but how that margin is managed directly impacts liquidation risk, flexibility, and capital efficiency.
The two primary margin modes in leveraged trading are:
Cross margin – Uses the trader’s entire account balance to maintain positions.
Isolated margin – Restricts risk to only the allocated margin for a specific trade.
Understanding the difference between cross and isolated margin is critical for managing risk, liquidation levels, and capital allocation. This guide provides a detailed breakdown, including examples with numbers and when to use each margin type.
What is Cross Margin?
Cross margin uses all available funds in a trader's margin account to support open positions. If a trade starts losing, the exchange automatically pulls extra funds from the account to prevent liquidation.
Key Features of Cross Margin
All positions share the same margin balance.
Other funds in your account help sustain the position, reducing liquidation risk.
Profits from one position can offset losses in another.
If losses exceed the available margin, the entire account balance is at risk.
Example: Cross Margin in Action
You deposit $10,000 into your margin account and open two trades:
BTC long – $5,000 position at 10x leverage (margin used: $500)
ETH short – $5,000 position at 10x leverage (margin used: $500)
Total margin used: $1,000
Available balance: $9,000
If your BTC trade starts losing, the platform automatically uses your remaining $9,000 to prevent liquidation.
Liquidation Example with Cross Margin
Initial BTC price: $50,000
Leverage: 10x
Position size: $5,000
Required margin: $500
If BTC drops 10%, the unrealized loss is $500. Instead of liquidation, the exchange deducts the loss from your available balance.
New available balance: $8,500
Position still open
If BTC keeps dropping and losses exceed $10,000, the entire account is liquidated.
Pros and Cons of Cross Margin
Pros:
Lower liquidation risk because the whole account backs the position.
More flexibility—profits from one trade can cover losses in another.
Useful for long-term trades and hedging strategies.
Cons:
Higher overall risk—if one trade goes wrong, all funds are at risk.
Harder to control losses—traders might lose more than planned.
What is Isolated Margin?
Isolated margin limits the margin risk to a single trade. If the position starts losing, only the allocated margin is used, and liquidation happens when that amount is exhausted.
Key Features of Isolated Margin
Each position has its own dedicated margin.
If the trade is liquidated, only the allocated margin is lost.
Allows for better control over liquidation risk.
Ideal for short-term trades and higher leverage strategies.
Example: Isolated Margin in Action
You deposit $10,000 but only allocate $500 as margin for a BTC long trade.
BTC long – $5,000 position at 10x leverage (margin used: $500)
ETH short – $5,000 position at 10x leverage (margin used: $500)
If BTC drops 10%, your entire $500 margin is wiped out and the trade is liquidated, but your remaining balance is untouched.
Liquidation Example with Isolated Margin
Initial BTC price: $50,000
Leverage: 10x
Position size: $5,000
Required margin: $500
If BTC drops 10%, your entire margin is lost, and the position is forcefully liquidated.
Remaining account balance: $9,500 (no additional losses).
BTC position closed.
Pros and Cons of Isolated Margin
Pros:
Risk is limited to the allocated margin—you won’t lose your entire account.
Better control over liquidation risk—useful for high-leverage trades.
Ideal for aggressive short-term strategies.
Cons:
Higher liquidation probability since positions don’t draw from the full account balance.
If a trade is about to liquidate, traders must manually add more margin to keep it open.
Cross Margin vs. Isolated Margin – Key Difference
When to Use Cross vs. Isolated Margin
Use Cross Margin When:
Managing multiple trades and want flexibility.
Hedging trades where one position can offset another.
Avoiding frequent liquidations by using the full account balance.
Use Isolated Margin When:
Taking a high-leverage trade with controlled risk.
Entering short-term positions that you don’t plan to hold long.
Protecting your total account balance from unexpected volatility.
Risk Management Tips for Both Margin Modes
Use stop-losses to reduce the chance of liquidation.
Avoid overleveraging, especially in isolated margin, where liquidation is more likely.
If using cross margin, ensure you have enough balance to prevent unexpected liquidation.
Monitor funding rates—holding leveraged positions for long periods can lead to extra costs.
For beginners, start with isolated margin before using cross margin.
Final Takeaways
Cross margin allows greater flexibility but exposes your entire account to liquidation.
Isolated margin limits risk per trade but increases the chance of liquidation.
Professional traders use both margin types depending on the trade type and risk profile.
Mastering cross vs. isolated margin is essential for any trader using leverage. Choose wisely based on your strategy, risk tolerance, and market conditions.
