What Is Cross-Margin Trading
Key Takeaways
- Cross-margin trading uses your entire account balance as shared collateral across all open positions, unlike isolated margin where each trade has its own margin pool.
- It helps reduce the chance of immediate liquidation by drawing unused margin from profitable positions to support losing ones.
- Cross-margin is ideal for experienced traders who manage multiple positions and want more flexible risk management.
- While it offers more protection against sudden liquidation, it also means that losses in one position can affect your entire balance.
- On Margex, cross-margin is designed with MP Shield™ protection to prevent unfair liquidations due to price manipulation.
- It’s important to understand how leverage, stop-losses, and margin ratios work before using cross-margin in a live environment.
- Beginners may prefer isolated margin for better risk control on individual trades, while advanced users can take advantage of cross-margin for more dynamic portfolio management.
Cross-margin trading allows traders to optimize trading strategies by sharing margin amounts across multiple positions. Unlike isolated margin trading, where each position has its own initial margin requirement and maintenance margin requirements, cross-margin trading simplifies risk management by utilizing the platform’s margin to cover potential losses.
In cross margin mode, the initial and maintenance margin is shared across all positions, reducing the chance of margin calls. This trading approach is a risk management tool that allows traders to maintain a stable margin level. However, careful monitoring of trading positions is crucial as cross margin position losses can impact overall account stability.
Choosing the right margin type is vital for effective trading, as margin to open new positions is limited to the available margin. Switching to cross margin can be beneficial for experienced traders who understand the implications. Overall, margin trading is a risk that requires strategic decision-making to avoid adverse outcomes.
Different skills and methods make trading easier and more favorable to crypto traders, especially when understanding maintenance margin. These methods can come to the rescue when it seems like all is over, and the best option is to liquidate due to excess margin; however, if a trader knows how to leverage them, it will serve as a protective hedge for his portfolio.
| Scenario | Details |
|---|---|
| Trader | Joe |
| Position | Short on ETH/USD |
| Initial ETH Price | $1,217 |
| Trade Size | 0.1 ETH |
| Margin Requirement | 1% = 0.01 ETH |
| Risk | If ETH drops, margin value drops |
| Cross-Margin Action | Withdraws extra margin from total account balance (0.1 ETH) |
| Result | Prevents liquidation by stabilizing the position |
Margin Trading vs Spot Trading : What’s the Difference?
When it comes to trading in the financial markets, two common methods are spot trading and margin trading. Understanding the differences between these two approaches is crucial for investors looking to optimize their trading strategies.
What is Spot Trading?
Spot trading refers to the purchase or sale of a financial instrument, such as stocks or cryptocurrencies, for immediate delivery and settlement. In spot trading, the transaction occurs at the current market price, known as the spot price. For example, if you buy Bitcoin at the current price of $20,000, the transaction is finalized immediately, and you own the Bitcoin outright.
What is Margin Trading?
Margin trading allows investors to borrow money from a broker to trade larger positions than they could with just their cash. This is done through a margin account, where investors can use leverage to amplify their potential profits. For instance, if you have a margin account and want to buy $10,000 worth of stock but only have $5,000 in cash, you can borrow the additional $5,000 from your broker, allowing you to trade on margin.
Consider the following examples to illustrate the differences:
- Spot Trading Example: You buy 1 Ethereum (ETH) for $1,500 using your brokerage account. You pay the full amount upfront, and the transaction is settled immediately. You own 1 ETH outright.
- Margin Trading Example: You want to purchase 2 ETH worth $3,000, but you only have $1,500 in your margin account. You take out a margin loan from your broker for the remaining $1,500. If the price of ETH increases to $2,000, your investment is now worth $4,000. After repaying the margin loan, your profit is magnified, demonstrating how margin can enhance potential gains.
Spot trading involves buying or selling assets for immediate delivery, while margin trading allows traders to borrow funds to increase their position size. Understanding the basics of buying on margin is crucial, as margin refers to the funds borrowed from a broker to amplify potential profits.
Before trading on margin, it’s essential to know the initial margin requirement and broker’s maintenance margin requirements. Margin can magnify both gains and losses, making it vital to implement sound trading strategies. Traders can take out a margin loan with specific margin loan rates that may vary.
Pros And Cons Of Cross Margin Trading
| Pros | Cons |
|---|---|
| Maximizes capital efficiency | Entire balance at risk |
| Reduces chance of early liquidation | Harder to control per-position margin |
| Suitable for large and hedge positions | Not suitable for beginners |
Like all trading methods, cross-margin has its risks and rewards; in this section, we will briefly discuss a few.
Pros
The benefits of cross-margin trading are numerous, but some are
- Cross Margin Trading complements Margin Trading supporting long and short positions.
- Cross Margin helps prevent Unnecessary Liquidation by sharing excessive margins across other accounts of the trader.
- Cross Margin allows traders to borrow more with the purpose of magnifying profits while using cross margin effectively.
Cons
Cross-margin trading is not without risks, as it deals with a highly volatile market, which is cryptocurrencies, especially when considering isolated margin in crypto trading. In this part, we will also list three disadvantages of cross-margin trading as part of a comprehensive risk management strategy.
- Cross Margin Trading puts the whole portfolio of a trader at risk if the whole trading operation goes sideways due to extreme market conditions.
- Cross Margin Trading snatches control from the trader in certain positions and restricts some additional trading techniques like copy trading, especially when compared to isolated margin.
- Traders who use cross-margin modes cannot make changes to the amount of margin for each position.
How To Trade With Cross-margin (Step-By-Step Guide With Screenshots From Margex)
| Step | Description |
|---|---|
| 1. Login to Margex | Create or log in to access trading features |
| 2. Fund Account | Click on wallet and deposit funds |
| 3. Open Trade Tab | Access the trading interface |
| 4. Choose Margin Mode | Select cross or isolated margin as needed |
Margex is a bitcoin-based derivatives exchange that allows traders to open leverage size of up to 100x for either cross margin or isolated margin in crypto trading. Margex also has a unique staking feature that allows traders to stake the same tradable assets to earn up to 13% APY returns with no lockup periods.
Margex has been designed to help traders trade easily with the help of different trading tools and techniques like cross and isolated-margin trading. Let us discuss how to access and use the cross and isolated-margin trading on Margex.
Step 1: Access Your Margex Account
For a new user on Margex, you can create a Margex account to allow you access to cross-margin trading and other features accessible on Margex. An existing user needs to login to access the Margex trading interface.
Step 2: Click On Wallet To Fund Account
After logging in to your account, click on the wallet to enable you to fund your account, as this will allow you to try using cross and isolated-margin trading.
Step 3: Click On Trade
Click on the trade tab to access all of the Margex trading features, including the future interface that contains the cross and isolated-margin tab.
Step 4: Choose Either Cross or Isolated-margin Trading
The left side of the image above shows the cross and isolated-margin tab that can be toggled to any preferred technique. A trader needs a good understanding of these techniques before opting for the desired one to manage risk and avoid losing funds.
Difference Between Cross Margin And Isolated Margin
Understanding the difference between cross margin and isolated margin is essential for managing risk in leveraged trading.
Isolated Margin: Focused Risk Management
With isolated margin, you choose exactly how much margin to allocate to a specific position. If the trade fails, only the amount you assigned is at risk, not your entire balance.
Example:
Patricia has €2,000 on her Margex account. She opens a 10× long position using €100 in isolated margin. If the trade gets liquidated, she loses only €100 — the rest of her funds remain untouched.
Best for:
- Beginners
- Precise risk control
- High-volatility trades
Each trade is “quarantined” from others.
Cross Margin: Shared Risk, More Flexibility
In cross margin mode, your entire margin balance supports all open positions. This can prevent liquidation by automatically drawing funds from other parts of your account. But it also means your losses can grow beyond the intended position if the market moves sharply.
Example:
If Patricia used cross margin instead, her €100 position could potentially drain more funds from the €2,000 balance to keep it open. If the market crashes, the platform may liquidate more than €100.
Best for:
- Experienced traders
- Managing multiple positions
- Hedging and capital efficiency
Risk: One bad trade can wipe out the entire balance.
Extra Tip for Margex Traders
On Margex, cross margin is often set as the default mode. Double-check your settings before opening a position, because the margin mode cannot be changed once a trade is active.
Use isolated mode if you want to define your max loss. Use cross margin if you prefer flexibility and plan to actively manage your trades.
FAQ
What Is Cross-Margin Leverage?
Cross-margin uses all a trader’s margins as available balance, drawing from any amount it feels is sufficient to cover the margin loss of a position or multiple positions from the available balance. To avoid liquidation, a trader needs to have a substantial amount of funds in their balance to cover the leverage drawn.
What Are The Features Of Cross-margin?
Cross margin utilizes the whole portfolio of a trader to prevent the liquidation of positions by spreading the entire balance across all open positions.
Is Cross-margin Safer?
Many trading platforms use cross-margin mode as default because it is straightforward to use; also, it is an essential hedging tool for institutional traders with multiple positions, as it can spread their entire balance to cover the margin loss. However, it does come with the risk of potential loss of total balance due to specific factors.
Is cross margin more profitable?
Cross margin can be more profitable in volatile markets because it uses the full balance of your margin account to prevent liquidation, allowing your position to stay open longer. However, it also carries higher risk—since losses can consume your entire available balance if the market moves against you.
Is it better to trade cross or isolated margin?
It depends on your risk tolerance. Cross margin is better for experienced traders who want to maximize capital efficiency and can manage risk well. Isolated margin is safer for beginners or volatile trades because losses are limited to the margin allocated to that specific position.
What are the benefits of cross margining?
Cross margining offers several benefits:
- Reduces risk of early liquidation by sharing margin across all open positions
- Improves capital efficiency by maximizing usable funds
- Suitable for hedging strategies and longer-term tradesHowever, it increases the risk of cascading losses across multiple positions if the market turns sharply.
What is cross margin 5x?
Cross margin 5x means you’re using cross margin mode with 5x leverage. Your entire account balance supports your position, but your buying power is multiplied five times. This setup increases both potential profits and losses, so proper risk management is essential.
