Recently, many friends have asked me about the margin logic in contract trading, especially how to choose between cross margin and isolated margin. I’ll break down this topic clearly.

When opening a contract position, you definitely need to add margin, which will be locked in the position. There are two concepts to understand about margin: the initial margin is the amount required to open a position, and the maintenance margin is the minimum level needed to keep the position open. If the margin falls below the maintenance margin, liquidation will occur.

Currently, there are two modes of contracts. In cross margin mode, all available funds in your account can be used as margin. When you incur losses, the system will automatically replenish margin from your account balance up to the initial margin level, until there’s no more funds to add. In this mode, the risk and profit/loss of all positions are combined; as long as the total loss exceeds the account balance, liquidation will happen.

In isolated margin mode, each position’s margin only covers that specific position. The system will not automatically add margin unless you do it manually. If the position’s margin drops below the maintenance margin, it will be liquidated immediately. In other words, with isolated margin, your maximum loss on a single position is limited to that margin, and other funds are unaffected.

Here’s a clearer example. Suppose you and a friend each have $2,000 and each open a 10x leveraged long position on BTC. 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 after losing $1,000, so the position remains open. If BTC rebounds, he can profit, but if it continues to fall, he might lose the entire $2,000.

The advantage of cross margin is strong loss resistance; it’s less likely to get liquidated in volatile markets, and operations are simpler. However, in big market moves or black swan events, the entire account could be wiped out in one shot. Isolated margin’s benefit is risk isolation—liquidation of one position doesn’t affect other funds—but it requires you to manually add margin and carefully control the distance between liquidation price and mark price, or you risk being liquidated instantly.

Regarding risk calculation, here’s a formula: position margin = (entry price × position size / leverage) + manual additions – reductions + unrealized P&L. When the liquidation risk reaches 70%, the platform will give an alert; exceeding 100% triggers liquidation directly. For isolated margin, liquidation risk is (maintenance margin / position margin) × 100%. For cross margin, it’s (maintenance margin / available balance + position margin) × 100%.

Most platforms default to the cross margin mode for beginners, and both modes support leverage adjustments, usually up to 100x. Note that you cannot switch modes or change leverage while you have open orders.

So, choosing which mode depends on your trading style. If you prefer long-term holding or longer trading cycles, cross margin might be more convenient. If you like managing multiple positions simultaneously or have limited risk tolerance, isolated margin offers more control. The key is to understand the differences and choose based on your actual situation.