Cross Margin vs Isolated Margin: What to Choose in Cryptocurrency Trading

Cross margin and isolated margin are two different ways to use borrowed funds on the exchange. In this article, we will explore what they are, when to use them, and how to choose the right approach for your strategy. We will also discuss the risks involved and provide practical tips to avoid fatal mistakes.

What is margin in crypto trading?

Margin is a trading method where you use not only your own money but also borrowed funds to increase the size of your trades. Imagine you have 1 BTC, but you want to buy 2 BTC. Without margin, you would need to pay fully for the entire position. However, with margin, you can take out a loan and open a larger trade without spending all of your capital. It works like leverage, which allows you to “multiply” your trading balance, but just like with any loan, you risk losing more than you invested.

Margin trading in cryptocurrencies involves actively using leverage, which increases both potential profits and risks. A trader borrows money from the exchange to open positions on a greater amount of cryptocurrency than they have in their account. However, if the market moves against them, the funds may be used to cover losses, which can lead to liquidation of positions.

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Cross margin is when you use all your deposit to cover losses on multiple positions. In other words, if you have opened several leveraged trades, all your funds are used to maintain those positions. If the market starts to “drop”, your other positions can lend a shoulder to prevent liquidation. It’s like playing cards with two hands, where all your bets are on one board.

Isolated margin works on a different principle. Here, you allocate a specific amount for each position, and the risks are limited to just the amount you invested in that position. If the market moves against you, only that position gets liquidated, not your entire balance. It’s similar to placing separate bets on different events — if one bet doesn’t hit, the others remain safe.

Comparison table: Cross margin vs. Isolated margin

Another example: you open several positions with margin at 3 BTC, and suddenly the market sharply moves against you. Positions start to lose money, and all your 3 BTC start working to support them. As a result, if the losses become too large, your deposit could be liquidated.

When to use cross margin and when isolated margin?

Cross margin is suitable for more experienced traders who know how to manage multiple positions at once and can afford more risks. If you’re confident in your strategy and ready for larger market fluctuations, cross margin might be your choice. This is particularly useful if you have several positions and want them all to use one shared balance.

Isolated margin will be the best option for beginners or those who want to limit risks for each specific position. This is suitable if you prefer not to put your entire deposit on one bet and want to ensure that the loss of one position won’t affect the others.

Key factors in choosing a margin type

When choosing a margin type, it’s important to consider several factors to properly balance risks and opportunities. Here are the key points to pay attention to:

1. Trader’s experience

For beginners: if you are just starting to work with margin, it is recommended to use isolated margin. This helps minimize risks since losses are limited to the deposit invested in a specific position. You don’t risk your entire account balance.

For experienced traders: if you are already familiar with the risks and specifics of working with margin, you can consider cross margin, which allows you to use your entire available balance to maintain positions, providing greater profit potential but also increasing risks.

2. Deposit size

Small deposits: with a small capital, isolated margin will be a safe choice as it limits the risk of losses at the level of a single position. You only risk part of your investment allocated for a single trade.

Large deposits: if you have significant capital, you can use cross margin, which offers more flexibility, allowing you to use the entire deposit to open and maintain positions. This can be advantageous if you actively trade and need more resources to manage multiple positions.

3. Type of strategy

For active trading: if you are opening multiple positions or engaging in day trading, cross margin may be a more profitable option, as it allows you to use a common balance to support multiple positions simultaneously. This increases overall liquidity and enhances opportunities for quick responses to market changes.

For long-term positions: if you intend to hold positions for a long time, it is better to use isolated margin to reduce risks on each specific trade. In this case, you can wait for the position to grow without worrying that other trades will affect your balance.

4. Risk level

Using cross margin means that your entire deposit may be used for maintaining positions, allowing for larger trades, but in case of failure, it can lead to significant losses. It also means that if you run out of margin to maintain a position, all open trades could be liquidated.

Isolated margin limits risks, as each asset is protected from losses of other positions. This can be a preferred choice for those looking to minimize the chances of liquidation.

5. Market and volatility

In conditions of high volatility (for example, in cryptocurrency markets), it is preferable to use isolated margin to limit possible losses during sharp price fluctuations.

If the market is stable and you are confident in your trading strategy, you can use cross margin to effectively utilize your capital for profit.

How to set up cross margin and isolated margin on popular platforms

Below is a table with the main steps for setting up margin on platforms Binance and Margex. It will help you quickly orient yourself on how to correctly set up margin trading depending on the margin type you choose.

Important points when using margin

1. Monitoring positions: always keep an eye on the margin balance, especially when using cross margin, as it may use all available funds to maintain the position.
2. Risks: be cautious with high leverage. It increases both profits and losses, so it’s wise to use stop-losses to protect your positions.
3. Platforms: Binance and Margex provide convenient tools for monitoring margin positions and notifications, so you can quickly notice important changes.

Common mistakes traders make when working with margin

Incorrectly chosen margin type

For example, beginners often choose cross margin because they don’t fully understand how it works. In reality, this can lead to a total loss of deposit because if a position on one of the assets goes wrong, the entire account is at risk. It’s important to understand that different markets have different margin mechanisms, and you need to be clear about what you’re getting into.

Lack of risk management

It’s like playing Russian roulette with leverage. Opening a large position with excessive leverage without assessing the risks is almost guaranteed to end in failure. There is often a desire to make quick profits, and it’s easy to lose one’s head. Traders don’t always set their stops correctly and fail to evaluate what happens if the market turns sharply. But without a clear strategy and understanding of where and how to protect your money, you can lose everything instantly.

Ignoring market volatility

Especially in crypto, where prices can jump by tens of percent in just a few minutes. Some traders think they can control everything, but such spikes make the market unpredictable. It’s essential to constantly monitor assets, consider possible fluctuations, and protect your positions using stop-losses or other mechanisms. If risks are not locked in on time, you can lose everything, as often occurs in volatile markets.

Overall, if you want to work with margin, it’s vital to understand the risks and strategies before starting. It’s like roulette: you may get lucky — or you may lose everything.

Examples of using cross margin and isolated margin

Cross margin: usage examples

Imagine you open several positions at 10x leverage on different assets, using all 3 ETH in your account as collateral for these trades. As long as the market moves in your favor, you don’t even notice how your profit is growing. But then comes a moment when the price of one of the assets starts to fall sharply. All your positions start to decline, and cross margin, like a hidden threat, begins to “pull” all your 3 ETH to support these trades. To avoid liquidation, the entire deposit amount is used to maintain positions. If the market doesn’t turn around in time, you risk losing all 3 ETH in a very short time. This is an example of how, with cross margin, all your funds work to maintain positions, and if at least one does not meet expectations — you could end up with nothing. So cross margin is like betting everything on one card, where your stake is your entire deposit.

Isolated margin: usage examples

Now imagine you decide to allocate only 1 ETH for a trade at 5x leverage. You use this 1 ETH solely for one position. If the market moves against you and the price of the asset starts to drop, losses will be limited to just this position. For instance, if the price falls by 20%, your loss will only be 1 ETH, and your remaining deposit, say 4 ETH, remains safe. You can continue trading or simply wait for the market to turn. This gives you greater control over risks because even if one trade doesn’t go according to plan, you won’t lose your entire deposit. Isolated margin is like building a barrier around each trade to limit potential losses.

Conclusion

In crypto trading, it is not only important to earn but also to manage risks to avoid losing everything due to one mistake. The market can swing by tens of percent in minutes, and here margin plays a key role.

The choice between cross margin and isolated margin depends on your experience and strategy. Cross margin is for experienced traders who can react quickly to market changes. It offers more flexibility, but the risks are higher. If even one position goes wrong, everything can burn.

Beginners should start with isolated margin. It limits losses on each position while keeping the rest of your funds safe. This is good protection against liquidation.

But it’s important to remember that risk management is not only about choosing margin. You need to control your emotions, set stop-losses, and not risk everything. Successful trading is not about short-term wins, but rather a long-term strategy.

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