I just started, what type of margin should I use? We hear the question many times, so we can call it isolated margin, but let's start by explaining the isolated margin option.
What is Isolated Margin and How to Use It?
Let's go through an example in this option: let's say the user keeps 200 dollars in his futures wallet, let's say the price of "X" coin in the position he will enter is 1000 dollars, and when the user enters a 10x leverage position with 100 dollars in isolated mode, the position size will be 1 "X" coin and 1000 dollars in dollar terms. It corresponds to . The margin amount we set as 100 dollars in isolated mode does not affect our total 200 dollars in futures transactions, but only puts the 100 dollars used in the position at risk. What are the advantages and disadvantages of this?
This part is the biggest difference between cross margin and isolated margin. You will understand it better when explaining cross margin. If we want to make money from futures transactions, we must understand this thoroughly. Let's continue with isolated margin on this position. As a result, the liquidation price of this position in isolated mode will be 900 dollars. If you ask why, it is simply the logic. You risked 100 dollars, the price of "X" coin is 1000 dollars. You opened a position with the size of 1 "X" coin, that is, it corresponds to a position worth 10 times the 100 dollars you risked. If our "X" coin, which is worth 1000 dollars, drops by 10% and drops to 900 dollars. You will write a loss of 100 dollars, and since you risked 100 dollars, your position will be liquid, and since you opened an isolated position, your 200 dollars on the futures side will not be completely lost, you will only lose the 100 dollars you opened in the position and preserve your balance on the other futures side.
In this case, your advantage is that when an additional news or negative event occurs, instead of losing your entire balance due to sudden volatile sharp drops, only the amount in the position will be liquidated. The disadvantage of this situation is that it causes the liquidation level to be closer. How? Let's understand what cross margin is to understand this;
What is Cross Margin and How to Use It
Let's talk about the advantages and disadvantages of the example above, assuming that it was opened in cross margin mode. Again, we opened a transaction with a position size of 1 "X" coin, that is, 1000 Dollars. This time, our liquidation level is now 800 Dollars instead of 900 Dollars. So why?
Because when we open a cross position, we risk our entire balance in our futures wallet. (Remind us that our total balance is 200 Dollars ☺️) What is our advantage here? If “X” coin drops from 1000 Dollars to 850 Dollars and starts to rise again and reaches 1100 Dollars, we will lose money. Even if we saw that it rose again before reaching 800 dollars, we continued to carry the position without liquidation because we increased our risk by using cross. Now that it has reached 1100 dollars, we are in a 100 dollar profit. We have just opened this on the isolated side. In the same scenario, this time when "X" coin reaches 900 dollars, it is liquidated and We would have lost $100.
As we can understand from here, the risk increases on the cross margin side, but it provides an advantage, while the disadvantage brought by the risk increases. On the isolated margin side, the risk becomes more controllable, but in addition to this advantage, a liquidation disadvantage emerges.
Let us give you additional information: If you want to push the liquidation price of your position further on the isolated margin side, you can move your liquidation further by pressing the (+) button in the margin section of that position, and the multiple positions you open on the isolated side each involve risk in themselves and do not affect other isolated transactions because each position has its own risk. However, multiple positions you open in cross margin mode will affect profit and loss negatively or positively because the positions opened on the cross side are based on your entire balance in futures transactions. That's all we have to say on this subject, learning will bring you profit, do not forget to follow Crypto Wolf for more: )