Which Should I Choose: Isolated Margin or Cross Margin

This post comes as a result of the question asked by a novice trader in the trading group that I belong to. This is why I often say it is better to focus on the knowledge first before the profits so you will become successful.

Knowledge has always been a powerful tool for conquering illiteracy as a trader you must always seek knowledge by asking your mentor meaningful questions, and putting what you have learned into practice. If you keep doing all this you will become successful in whatever you are doing.

screenshot gotten from my Binance account

In the world of future trading, there are two ways of managing your trading capital before and after opening a trade these two ways are the Isolated Margin and Cross Margin which often confuse traders most especially newbie traders. This post is written to enlighten you on both types, so you won't end up liquidating your account.

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Isolated Margin

screenshot gotten from my Binance account

Looking at the above, screenshot it is the isolated margin that has been selected which means if there should be any liquidation in the trade the amount that I don't use for the trade wouldn't be affected. For example, let's say you have $25 as your available future balance and you only want to use $20 and open a trade.

Now, since you have $25 and only open a trade using the $20 left $5, it means in an event of liquidation the $5 wouldn't be affected, only the $20 would be affected. The $5 which becomes your available balance will remain the way it is and will not be used to add to the $20 you have used and open your position.

This means isolated margin is the margin that prevents your account from further liquidation which implies that once the amount you use in opening your position has finished, your trade should close and that the trade should not cross to your available balance.

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Cross Margin

screenshot gotten from my Binance account

Looking at the above, screenshot it is a cross Margin that has been selected which means if there should be any liquidation in the trade it should also affect my available balance. The purpose of cross Margin is to help maintain your position in the market instead of leaving the market your available balance should come in place and protect your position.

In cross-margin, both your trading capital and available capital are used for the position you have open. For example, let's say you have $25 as the amount available for future trade and you only want to open a position using $20 and you choose to use cross Margin.

Now since you have $25 and it is $20 that you want to use to open your position which means by selecting cross Margin you have agreed that your remaining balance which is $5 should help protect your account from being liquidated in case there will be liquidation.

This means cross Margin share your positions by using both your available balance and the amount you have used and open your position.

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Which Should You Choose

Both ways are good when it comes to future trading which all depends on what you want from the market. It all depends on how you want to manage your risk and no matter which one you choose, you shouldn't forget applying stop loss in your trader.

Some people think cross margin is too risky which is not, the only thing about cross margin is that your profit will also be used for trading and your capital is from both your available balance and the trading amount which if you like opening a multiple trade, then you should consider choosing cross margin. But If your intention is just to open a single trade, then isolated margin is what you should consider choosing

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Disclaimer

_{Isolated and cross-margin margins are what we have discussed here today, and the essence of this post is to enlighten you about their differences. Note, that this post is purely written as educational content, and not as a piece of investment advice.}

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