A reasonable choice of margin mode will help you better maintain your position and control losses.
1. Isolated Margin Mode
Under isolated margin mode, if market fluctuations lead to liquidation, the loss is only the margin of the position. Other funds in the contract account will not be affected.
Xiao Ming has 1000 USDT in his contract account and he used 100 USDT as the margin to open a buy BTC order with 50x leverage under isolated margin mode. The forced liquidation price estimated by the system is 9000 USDT. Subsequently the BTC price fell to 9000 USDT and the position was liquidated by the system accordingly. Xiao Ming lost 100 USDT but his balance 900 USDT was not affected and still remained in his contract account.
1. The advantages of isolated margin mode is you can hold positions in both directions, that is, a buy long and a sell short position at the same time, and risks for both positions are calculated independently.
2. If positions are forced liquidated due to volatile market fluctuations, only the margin for the forced liquidated position will be lost and other assets in the contract account will not be affected.
3. Although isolated margin mode can help to reduce the scale of the loss but it is not capable to carry the losses so when losses exceed margin balance, the position will be forced liquidated. In other words, the loss of the position cannot exceed 100%.
2. Cross Margin Mode
All the available balances in your contract account will be used as the margin for your contract position when you select cross margin mode. So, when the losses exceed the available balances of your entire contract account, the position will be forced liquidated and you will lose all your assets in the contract account.
Xiao Ming has 1000 USDT in his contract account and used 100 USDT as the margin for his contract position under cross margin mode. So when market went bearish with the losses of his position at 150 USDT, under the isolated margin mode, this position would have been forced liquidated by the system. But as Xiao Ming chose cross margin mode so although losses has exceeded 150% but his position will still remain until the losses are near 1000 USDT before it gets forced liquidated by the system.
1. Under cross margin mode, user cannot open a buy and sell position at the same time User can only hold positions in a single direction (either buy or sell position) at each time.
2. The positions will only be forced liquidated in volatile market fluctuations if the losses has reached the maximum available balance in the user's contract account otherwise the contract position will still remain open and not liquidated even if losses has already exceeded 100%.
When you participate in certain activities, there may be fund transfer restrictions imposed for that activity, so in such cases, please refer to the specific activity rules.
Editor: BiKi Trading Academy
Update: Contract Trading Open Class Team