Binance — Cross Margin Vs Isolated Margin | USDⓈ-M Futures Trading Tutorial!
Binance gives you two margins to trade USDⓈ-M Futures: Cross and Isolated.
Your profit will be always the same in both margins but your loss can be lower in an isolated margin, read this to know how an isolated margin can decrease your loss.
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Video Tutorial
The video will be easier to understand. If you prefer a written article, continue reading…
What is Liquidation?
Before understanding the difference between both margins, you need to understand what is liquidation.
Liquidation occurs when the margin level of a position falls below its Maintenance Margin level. Let’s understand this with an example.
Explanation of the above screenshot:
Let’s say, Your futures wallet balance is 10 dollars.
You use 10X leverage to open a 100 dollar position. In this position, 10 dollars or 1X is yours, and the rest 90 dollar or 9X is Binance’s Fund.
If your position will be in profit, you can hold it as long as you want, but if your position starts going in loss, you can hold it only till -9.99 dollars.
Once your loss reaches -10 dollars, your position will be liquidated because your futures wallet balance was only 10 dollars.
The reason behind liquidation is simple, you cannot use exchange funds to hold your position. The exchange automatically closes your position to recover their fund.
How does Cross Margin work?
In Cross Margin Mode, Your whole futures wallet balance is considered as the margin for all open positions. You will lose everything that you have in your futures wallet in case of liquidation.
You can check the below position as an example.
Currently, the Risk is 5%, and the Liquidation price is Zero in the above position.
My position size is 10 dollars(10 Coins * 1 Dollar Entry Price). So even if this coin price will go to zero above position won’t be liquidated because I have 10 dollars in my futures wallet.
Now let’s see what happens when I will open the second position.
As you can see, even after opening the second position nothing has changed in the first position(left screenshot) except risk percentage. Now the risk is 10% in both positions.
The liquidation price of the first position is still zero because in cross margin Binance calculates the liquidation price for each position separately using the full wallet balance.
What Binance is doing in cross margin is, They are using $10 to calculate the liquidation price of the first position then using $10 again for the second position. If you will open more positions, they will use the same $10 for all the positions.
This means, No matter what is the current liquidation price of all your positions, If the total loss of all positions reaches -10 dollars, all the positions will be liquidated.
For example(Above Image), If the unrealized loss of the first position is -4 dollars and the unrealized loss of the second position is -6 dollars, both positions will be liquidated.
The advantage of cross margin is the unrealized profit of active positions can save other underwater positions from liquidation.
For example(Above Image), If the unrealized profit of the first position is 10 dollars and the unrealized loss of the second position is -12 dollars, your positions won’t be liquidated because the total unrealized loss of both positions is -2 dollars and your total wallet balance is 10 dollars.
How does Isolated Margin work?
In Isolated Margin Mode, You can assign different margins to all open positions as per your requirement. You will lose only that you assigned to that position in case of liquidation.
You can check the below position as an example.
The entry price of the above position is .10 cents, and the liquidation price is .09 cents, which is only 10% away from the entry price.
My futures wallet balance is 10 dollars but I assigned only 2.5 dollars to this position that’s why the liquidation price is very close. In case of liquidation, I will lose only 2.5 dollars instead of my whole account.
Now let’s see what happens when I will open the second position.
As you can see in the second position(Right Screenshot), the Leverage is 25X, the risk percentage is very high and the liquidation price is very close but this position isn’t going to affect my other positions.
You can also notice different risk percentages in both positions because in isolated margin all positions are separate.
If my second position will be liquidated, I will lose only 1 dollar and my other positions will be untouched.
If you’re a beginner, the isolated margin is the best for you, It can help you to save a lot of money and it will also give you a better return in a long term.
Cross VS Isolated in Short
All open positions are connected in the cross margin and in the isolated margin all open positions are separate.
If you don’t have a Binance account, you can create one using my referral link to get $300 Welcome Bonus.
Now, This article has come to an end. I hope you found this article helpful. Please give your valuable feedback on this article so that I will be able to improve my writing skill.
I know this short article hasn’t explained everything about Cross and Isolated Margins. So if you have any queries and questions, please ask in the comment section below.
Disclaimer: All screenshots(Positions) used in the article/video are edited for tutorial purposes only. Always check the liquidation/other prices in the open positions. The information shared in the article/video isn’t financial, legal, tax, or any professional advice. The content of the article/video is solely my opinion, Do your own research before investing.
