Traders involved in contract trading have probably been troubled by this question: should I use cross margin or isolated margin? Today, I’ll clearly explain the core differences between these two modes.

First, the fundamental difference: in cross margin mode, all the funds in your account can be used to maintain positions, and the system will automatically add margin when needed; whereas in isolated margin mode, each position has its own independent margin, and losses only affect that specific position, not your entire account.

Specifically, the logic of cross margin is as follows. When you open a position, you need to deposit an initial margin. If the position’s loss drops to the maintenance margin level, the system will automatically add margin from your available balance. If your available balance is insufficient, the system will execute a liquidation. This means your risk and profit are calculated across the entire account, and if losses exceed the total account balance, a liquidation occurs.

In contrast, isolated margin works the opposite way. The margin for each position is only used for that position, and the system will not automatically add margin—you need to do it manually. The advantage of this is that even if the position is liquidated, the maximum loss is limited to the margin you allocated for that position, without affecting other funds.

Let me give a practical example. Suppose you and a friend each have $2,000, and both open a 10x leveraged long position on BTC with $1,000 initial margin. You choose isolated margin, and your friend chooses cross margin. If BTC drops to the liquidation price, you lose $1,000 and get liquidated, leaving you with $1,000 remaining. Your friend’s system automatically adds margin, so the position remains open. If BTC then rebounds, he might recover some losses; but if it continues to fall, he could lose the entire $2,000.

So, how to choose? The advantage of cross margin is its strong loss resistance—it’s less likely to get liquidated in volatile markets, and is easier to operate. But the risk is that in extreme market conditions, the entire account could be wiped out. Isolated margin, on the other hand, offers more controlled risk, but requires you to actively manage your margin and strictly monitor the distance between the liquidation price and the mark price; otherwise, individual positions can be liquidated easily.

Regarding margin calculation, here’s a reference formula: Position Margin = (Position Value / Leverage) + Additional Margin – Reduced Margin + Unrealized P&L. The liquidation risk is calculated based on position margin and maintenance margin. Most platforms issue a warning when risk reaches 70%, and trigger liquidation at 100%. The liquidation risk for isolated margin is calculated as (Maintenance Margin / Position Margin) × 100%, while for cross margin it’s (Maintenance Margin / Available Balance + Position Margin) × 100%.

Most exchanges default to allowing users to choose cross margin mode, with maximum leverage up to 100x for both modes. However, note that when you have open orders, you cannot switch between cross and isolated margin, nor can you modify leverage.

In summary, cross margin is suitable for experienced traders with strong risk tolerance, while isolated margin is better for those who want more precise risk management. The choice depends on your trading style and risk preferences.