Cross Margin (Derivatives Trading)

Cross Margin, in the context of derivatives trading in cryptocurrency, refers to a risk management strategy where the entirety of a trader's available margin balance is used to cover potential losses on all open positions. This contrasts with isolated margin, where each position is independently marginized.

In cross margin trading, if the value of a trader's positions falls and approaches the liquidation price, the exchange may utilize the trader's entire margin balance to prevent liquidation. This can provide more flexibility in managing risk, as it allows the trader to maintain positions even if some individual positions move unfavorably.

Example:

Suppose a trader has a total margin balance of $10,000 and opens two positions:

1. Long on Bitcoin (BTC) with $7,000 margin
2. Short on Ethereum (ETH) with $3,000 margin

If the value of both BTC and ETH decreases significantly, and the total margin required to maintain the positions exceeds $10,000, the exchange will use the entire $10,000 margin balance to prevent liquidation. This ensures that the trader's positions remain open, despite the adverse market movement.

Case:

Trader A has $10,000 in margin balance and opens multiple leveraged positions across various cryptocurrencies using cross margin. Over time, the value of some positions decreases, putting the total margin requirement close to the trader's available balance. Without cross margin, individual positions might face liquidation. However, with cross margin, the exchange utilizes the entire margin balance to prevent liquidation, allowing Trader A to maintain their positions and potentially recover from market fluctuations.