What is the difference between cross and isolated margin binance

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Isolated Margin

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Isolated Margin is the margin balance allocated to an individual position. Isolated Margin mode allows traders to manage their risk on their individual positions by restricting the amount of margin allocated to each one. The allocated margin balance for each position can be individually adjusted.

If a trader’s position is liquidated in Isolated Margin mode, instead of their entire margin balance, only the Isolated Margin balance gets liquidated.

For example, let’s say Alice enters a long position in BTC worth 1000 USD with 10x leverage. She has a margin balance of 2000 USD but only wishes to risk a portion of that for an individual position. She sets the Isolated Margin for the position to 100 USD. If her position is liquidated, she won’t lose more than 100 USD. 

The Isolated Margin amount can be adjusted for open positions. If a position in Isolated Margin mode is close to being liquidated, liquidation can be prevented by allocating additional margin to the position. 

On the other hand, adjusting the margin mode associated with a position after it has already been opened is not possible. It is highly advised to check the margin mode settings before entering a position.

Another commonly used margin mode on trading platforms is Cross Margin. In Cross Margin mode, the entire margin balance is shared across open positions to avoid liquidation. If Cross Margin is enabled, the trader risks losing their entire margin balance along with any open positions in the event of a liquidation. Any realized PnL from another position can aid a losing position that is close to being liquidated.

Typically, Cross Margin is the default setting on most trading platforms, as it is the more straightforward approach suitable for novice traders. However, Isolated Margin can also be useful for more speculative positions that require strict downside limitations.

If you’d like to get familiar with margin trading, check out What is Margin Trading?

Binance Margin Trading has recently launched isolated margin mode, alongside its existing cross margin mode. You may select Cross 5x or Isolated 5x on the new trading page, as shown below.

In isolated margin mode, the margin is independent in each trading pair:

  • Each trading pair has an independent isolated margin account. Only specific cryptocurrencies can be transferred in, held, and borrowed in a specific isolated margin account. For instance, in BTCUSDT isolated margin account, only BTC and USDT are accessible. You may open several isolated margin accounts.

  • The position is independent in each trading pair. If adding margin is required, even if you have enough assets in other isolated margin accounts or in the cross margin account, the margin will not be added automatically, and you may have to replenish manually. 

  • The margin level is calculated solely in each isolated margin account based on the asset and debt in the isolated. 

  • Risk is isolated in each isolated margin account. Once liquidation happens, it will not affect other isolated margins. 

For detailed rules about isolated margin trading, you may refer to Isolated Margin Trading Rules. 

In cross margin mode, the margin is shared across the user’s account:

  • Each user can only open one cross margin account, and all  trading pairs are available in this account; 

  • Assets in a cross margin account are shared by all positions;

  • The margin level is calculated according to total asset value and debt in the cross margin account. 

  • The system will check the margin level of the cross margin account and send a notification to the user about supplying additional margin or closing positions. Once liquidation happens, all positions will be liquidated. 

For more detailed rules about cross margin trading, you may refer to Cross Margin Trading Rules. 

Example

Day One: The ETH market price is 200 USDT, while the BCH market price is 200 USDT. User A and User B each transferred 400 USDT into their respective margin accounts as margin balance, and purchase ETH and BCH with 5X leverage on average. Provided User A traded in cross margin mode while User B traded in isolated margin mode. (Trading fees and interest are not considered in this example).  

 

 

 

DAY ONE

User A (Cross Margin)

Assets

5 ETH

5 BCH

Collateral

400 USDT

Margin Level

(5 ETH * 200 + 5 BCH * 200) 

/ 1600

= 1.25

Status

Normal

Day Three: ETH price rose to 230 USDT, while the BCH price fell to 180 USDT. 

 

 

 

DAY THREE

User A (Cross Margin)

Assets

5 ETH

5 BCH

Margin Level

(5 ETH * 230 + 5 BCH * 180) 

/ 1600

= 1.28

Status

Normal

 Day Five: ETH price decreased to 220 USDT, while the BCH price dropped to 120 USDT, provided that both users choose not to add margins. 

 

 

 

DAY FIVE

User A (Cross Margin)

Assets

5 ETH

5 BCH

Margin Level

(5 ETH * 220 + 5 BCH * 160) / 1600

= 1.06

Status

Margin Call Triggered

(User must add margin)

To learn more about margin trading on Binance, read the Binance Margin Trading Guide from Binance Academy.

These days, many exchanges offer leverage trading features in one way or another. A major difference lies in the type of margins used by exchanges – the common ones are cross and isolated margins.

Before we get into the different types of margins, let’s briefly look back on what margin is. Let’s say Jack has $1000 of your own money as collateral for a leveraged position, this is what we refer to as margin. The position size can be larger than that, using leverage.

The image below shows the order screen on Binance Futures . On the top left, you see cross and isolated margin options. Let’s get into what these two mean.

By the way, if you are not sure how to trade futures on Binance , you may check out our comprehensive guide on the subject!

What Is Cross Margin?

The most commonly-used margin mode across exchanges is called cross margin. In this mode, your entire account balance is used to margin all open positions. The good part about cross margin is that

. In this mode, your entire account balance is used to margin all open positions. The good part about cross margin is that P&L from one position can be used to support a position that is close to liquidation . Depending on the platform, this works with unrealized P&L too.

While this type of margin is very straightforward and easy to use, it does not come without risk. Traders, who use cross margin, risk losing their entire account in case of liquidation. In the example used earlier, Jack would lose the entirety of his $1000. The only way to prevent liquidation is to add more money to the account.

What Is Isolated Margin?

In the Isolated Margin mode, you allocate margin specifically to a position or trading pair . As you can see in the screenshot below, the platform asks you to transfer funds into the isolated margin before you can trade.

This mode of margining allows you to manage your risk on a specific pair or position by choosing how much margin is allocated to it. This is quite helpful in worst-case scenarios as only the funds allocated to the position can be liquidated.

Let’s apply this to the example of Jack!. If Jack uses isolated margin, he can choose how much of that $1000 he wants to allocate to a certain position. For example, he longs $1,250 worth of BTC but is only ready to lose $125 in case of liquidation. Jack, therefore, sets the isolated margin to 125 USD, which is then the maximum amount he would lose if the position gets liquidated.

If the position goes underwater and gets close to being liquidated, Jack can still decide to add margin to the position. I personally do not recommend adding to a losing position, but rather sticking to the plan you had from the start.

Which One Is Better?

I don’t think there is a black and white answer to this. A major factor in deciding which one is for you lies in how you manage your risk. After all, a stop loss (whether on a cross margin or isolated margin position) still ensures the losses of a position are capped to a preset amount.

To put it simply, with proper risk management, liquidation can be avoided altogether, which means cross margin isn’t as risky as it sounds. Instead, it becomes a highly useful tool that allows you to use P&L from the winning position to rescue a losing position. Pretty good, right?

If you like to partially hedge positions, or take pair trades (for example, shorting Bitcoin while longing AVAX), cross margin might therefore be more attractive. If you take single trades, you could be more inclined to use isolated margin. In my opinion, it’s really a question of preference, rather than superiority.

Closing Statements

Now that you know the differences between cross and isolated margin, you can decide which one is best for you. Please do not forget the importance of managing risk, especially when trading with leverage. As long as you do this, margin trading (both cross and isolated) is a great tool in the toolbox.

As usual, please remember this article is based on my own experiences in trading, and it does not constitute financial advice. Do your research, try new things out and let’s continue to make some money!

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Written by Jane