Understanding the Difference Between Cross Margin Mode and Isolated Margin Mode
LBank allows you to trade in Isolated Margin and Cross Margin modes. The major difference between these two is the method of margin allocation or asset to be used as collateral. Isolated Margin mode allows you to set a particular amount to a single position to limit risks while the Cross Margin mode automatically sets the balance of your entire margin account as collateral. Let us discuss the advantages and disadvantages of each mode and how they are most useful in trading:
Margin Trading on LBank
Before explaining the differences between Cross Margin and Isolated Margin, let’s briefly discuss margin trading itself. Margin trading allows traders to buy or sell assets with borrowed funds, providing the opportunity to magnify potential profits or losses. When engaging in margin trading on LBank, you need to choose between the two margin modes: Cross Margin and Isolated Margin.
Cross Margin Mode
Cross Margin Mode is a margin setting where a single margin balance is shared among all your open positions. This means that the entire margin balance acts as collateral for all your active trades. Let’s illustrate this with an example using LBank’s Futures market.
Imagine you decide to go long on a BTC/USDT perpetual contract with a leverage of 10. In Cross Margin Mode, the margin required for this trade is taken from your shared margin balance. What’s crucial to understand is that the liquidation threshold extends beyond the margin for this specific trade. Instead, it incorporates your available wallet balance and the collective profit and loss from all your open positions.
In Cross Margin Mode, you essentially average the risk across all your positions. This can be beneficial for long-term strategies where you aim to withstand significant market fluctuations. However, it’s important to note that this approach puts your entire margin balance at risk. If your margin balance falls below the maintenance margin, all your open positions will be liquidated to cover the losses.
Cross Margin is particularly useful when you are looking to ride out market volatility and have confidence in the overall performance of your portfolio.
Isolated Margin Mode
Isolated Margin Mode, on the other hand, allows you to assign different margin balances to individual positions. Each open position has its own isolated margin, and liquidation calculations are specific to that position alone. This means that if one position reaches the liquidation threshold, only that position will be liquidated, and the losses will be confined to that particular trade.
Let’s use an example in the LBank Futures market to illustrate Isolated Margin Mode. Suppose you open a long position on an ETH/USDT perpetual contract with a margin of $100. Simultaneously, you open a long position on a BTC/USDT perpetual contract with a margin of $50. In Isolated Margin Mode, these two positions are entirely separate. If the BTC/USDT trade reaches the liquidation point, only that position will be closed, and your losses will be limited to the $50 margin you allocated to it. Your ETH/USDT position remains unaffected.
Isolated Margin Mode is well-suited for short-term trading strategies where you want to minimize the risk of losing your entire margin balance due to a single position. It’s especially useful when you don’t intend to hold positions through significant market fluctuations.
Differences Between Margin Modes in Spot and Futures Markets
It’s important to note that the way Cross Margin and Isolated Margin work can vary between spot and futures markets on LBank.
In the Futures market, as we discussed earlier, Cross Margin and Isolated Margin involve a single margin balance or isolated margin per position, respectively. However, in the Spot market, things are slightly different. Cross Margin and Isolated Margin have separate wallets, and you need to transfer funds between them.
For example, if you’re trading in the Spot market, you’ll need to transfer funds specifically to your Cross Margin wallet and Isolated Margin wallet separately. Each trading pair in Isolated Margin Mode also requires its own isolated margin.
Switch Between Cross Margin Mode and Isolated Margin Mode on LBank
Switching between Cross Margin Mode and Isolated Margin Mode on LBank is a straightforward process. Here are the step-by-step instructions:
1.Log in and Select Margin Mode: After logging in, navigate to the trading interface where you want to switch the margin mode (either Spot or Futures). Look for the “Cross” option, usually located near the top or bottom of the trading interface. Click on “Cross.”
2.Confirmation Screen: A confirmation screen will appear, displaying the options for the margin mode you want to select. Within this screen, you will see options for both “Cross Margin” and “Isolated Margin.” Tap the margin mode you want to switch to by clicking on it.
3.Confirm Your Choice: You have now completed the transition to the “Isolated Margin” mode. Enjoy your trading experience. It is essential to ensure that you have consciously chosen the margin mode that aligns with your preferences before initiating any trading orders or entering positions. Should you ever need to switch between “Cross Margin” and “Isolated Margin” modes again, you can readily revisit the provided steps for a seamless transition.
The choice between Cross Margin and Isolated Margin in margin trading on LBank depends on your trading strategy and risk tolerance. Cross Margin Mode is ideal for long-term strategies where you want to spread risk across all your positions, even at the cost of potentially losing your entire margin balance in extreme market conditions. Isolated Margin Mode, on the other hand, is better suited for short-term strategies where you aim to limit losses to individual positions and protect your overall margin balance.
Understanding these two margin modes and when to use them is essential for managing risk effectively in your trading endeavors. It’s crucial to assess your trading style, market conditions, and risk tolerance to determine which margin mode aligns best with your goals.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.