Cross Margin

Cross margin in crypto refers to a risk management strategy where the entire trading account balance is used as collateral for open positions. In cross margin trading, the margin requirement is shared among all open positions, allowing traders to utilize their entire account balance to support their positions.

Example:

Let's say a trader has a cryptocurrency trading account with a balance of $10,000. They decide to open two positions:

1. Long position on Bitcoin worth $5,000.
2. Short position on Ethereum worth $5,000.

In cross margin trading, the $10,000 balance is used as collateral for both positions. If one of the positions moves against the trader and incurs losses, the remaining balance in the account can be used to cover those losses. This approach allows for more flexibility in managing risk compared to isolated margin trading, where each position has its own dedicated margin.

Case:

Suppose the price of Ethereum increases significantly, causing the short position to lose $2,000. In cross margin trading, the trader's account balance would cover the losses, and the remaining balance would be $8,000 ($10,000 - $2,000). However, if the trader had used isolated margin trading for each position separately, the loss on the Ethereum position would have been isolated from the Bitcoin position, potentially leading to liquidation if the Ethereum position's margin was insufficient to cover the loss.

In summary, cross margin trading allows traders to manage risk more efficiently by utilizing their entire account balance as collateral for multiple positions, thus providing more flexibility in handling adverse price movements.