Cross Margin

What Is Cross Margin?

Cross Margin is a margin trading method where a trader’s entire margin balance is shared across all open positions. This means that the available funds in the trader’s account are used to cover margin requirements for all trades, helping to prevent liquidation but increasing overall risk.

How It Works

• Shared Balance: In cross margin, all your available funds are used to support your open positions. If one trade starts losing money, funds from other positions or your account balance are automatically used to cover the losses, reducing the chance of immediate liquidation.
• Risk Management: While this helps protect individual trades from getting liquidated quickly, it also means that a loss in one position could drain your entire account, as all your assets are tied together.
• Leverage: Traders often use cross margin to maximize their leverage by using all available funds for multiple positions, but they have to be careful because a bad trade could affect the entire balance.

Example

Imagine you're at a fair with $1,000, and you're playing two games at once: a Bitcoin game and an Ethereum game. If you start losing money in the Ethereum game, the fair lets you dip into your winnings or funds from the Bitcoin game to cover the losses. This way, you can keep playing the Ethereum game without losing your spot. However, if you lose too much in the Ethereum game, you risk running out of money from both games, putting your whole $1,000 at risk.

In cross margin, the funds in your account (including those tied to other trades) are shared to cover any losses, helping you avoid forced liquidation, but potentially putting your entire account balance at risk if one trade goes badly.

Key Takeaways

• Cross Margin uses your entire margin balance to support all open trades, reducing the risk of liquidation for individual positions.
• It allows for more flexibility but increases overall risk, as a bad trade can wipe out your whole account.
• It’s different from isolated margin, where each position has its own margin balance.

In short, cross margin is a high-risk, high-reward way to trade, where all your available funds support your open positions, reducing liquidation risks for individual trades but increasing the chance of losing your entire account balance.