Key Differences Between Isolated Margin Vs Cross Margin

Find out about the differences between isolated margin vs cross margin in this section.These differences are solely based on the amount of associated risk, flexibility across different trading strateg

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Last updated 1 year ago

Key Differences Between Isolated Margin Vs Cross Margin

Isolated Margin Vs Cross Margin

Risk Management: Isolated margin provides traders with granular risk management unlike cross margin which combines the total risk of all open positions. For this reason, Isolated margin becomes more appealing when risk managing individual positions. On the other hand, cross margin is suitable when managing multiple positions so that one position could offset the risk in another open position. However, the combined risk on cross margin is high and has the potential to cause massive losses.
Flexibility: Traders can manually add maintenance margin funds on an isolated margin position to keep the position open for longer. On the other hand, cross margin utilizes the account’s total balance to fund the amount of margin so as to prevent liquidation. This means that while isolated margin requires human intervention, cross margin is a more hands-off when it comes to maintaining the margin balance. As you can see, the flexibility across both modes of margin is different.
Collateral requirements: Isolated margin requires one to set aside a particular portion of their money to risk for an individual position. On the other hand, cross margin requires one to put all the funds in their account to risk. This means that in cross margin, an open position will utilize the balance in your account to protect the trade against liquidation. For this reason, cross margin is highly risky as it puts the entire portfolio to risk.
Use cases: Isolated margin favours traders who intend to manage the risk of individual trades on a per-trade basis. Particularly, when the traders are convinced that a particular trade has high potential. One popular trading strategy is where isolated margin traders risk 20% of their account balance to profit 80% more. On the other hand, cross margin is suitable for traders who intend to hold multiple positions and hedge them against each other. Furthermore, cross margin is well-suited for traders who would want a more hands-off approach to trading.

PreviousIsolated Margin Vs Cross Margin Trading NextElastic Automated Market Maker (eAMM)

Last updated 1 year ago

Isolated Margin Vs Cross Margin

Risk Management: Isolated margin provides traders with granular risk management unlike cross margin which combines the total risk of all open positions. For this reason, Isolated margin becomes more appealing when risk managing individual positions. On the other hand, cross margin is suitable when managing multiple positions so that one position could offset the risk in another open position. However, the combined risk on cross margin is high and has the potential to cause massive losses.
Flexibility: Traders can manually add maintenance margin funds on an isolated margin position to keep the position open for longer. On the other hand, cross margin utilizes the account’s total balance to fund the amount of margin so as to prevent liquidation. This means that while isolated margin requires human intervention, cross margin is a more hands-off when it comes to maintaining the margin balance. As you can see, the flexibility across both modes of margin is different.
Collateral requirements: Isolated margin requires one to set aside a particular portion of their money to risk for an individual position. On the other hand, cross margin requires one to put all the funds in their account to risk. This means that in cross margin, an open position will utilize the balance in your account to protect the trade against liquidation. For this reason, cross margin is highly risky as it puts the entire portfolio to risk.
Use cases: Isolated margin favours traders who intend to manage the risk of individual trades on a per-trade basis. Particularly, when the traders are convinced that a particular trade has high potential. One popular trading strategy is where isolated margin traders risk 20% of their account balance to profit 80% more. On the other hand, cross margin is suitable for traders who intend to hold multiple positions and hedge them against each other. Furthermore, cross margin is well-suited for traders who would want a more hands-off approach to trading.