Cross and Isolated Margin: How Futures Collateral Changes Liquidation Risk
Summary
The document compares two ways to collateralize leveraged futures positions. With isolated margin, a trader allocates funds to an individual position, limiting the funds exposed to that position's liquidation. This can contain losses on a speculative trade, though leverage and volatility can still exhaust the allocated margin quickly.
Cross margin uses the account balance as shared collateral. Realized profit and loss from other positions settled in the same cryptocurrency may support a losing position, offering more room to manage several trades or hedges. The trade-off is broader account exposure: liquidation can put the whole balance at risk. The article also notes that Coin-M futures may allow collateral from multiple cryptocurrencies in a joint pool. It gives no formulas, maintenance-margin rules, or exchange-specific liquidation examples, so its descriptions are conceptual and do not establish the exact risk of any particular position.
Key ideas
- Isolated margin confines the collateral at risk to the amount assigned to one position.
- Cross margin shares account collateral, allowing other realized profits to support a losing position in the same settlement currency.
- Cross margin can offer more flexibility for managing multiple positions, but it exposes a wider balance to liquidation.
- Coin-M futures may pool collateral from different cryptocurrencies.
- The article omits the detailed margin and liquidation rules needed to calculate position-specific risk.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.