The isolated margin leverage mode means that the client’s funds are allocated into several shares, and the collateral assets (margin) allocated to a position are limited to a certain amount. The margin change of a single position type has no effect on the rights and interests of the client’s other position accounts; isolated margin leverage is affected by the market. Affected by price fluctuations, the risk of liquidation is high, but the overall loss of customers is small.
The cross-position leverage mode means that all assets in the customer’s account are used as collateral assets (margin), all positions in the account share the margin, and the price change of each position directly affects the rights and interests of the customer’s overall account. The risk of liquidation with leverage is small, but the overall loss will be large if the liquidation occurs.
The difference between isolated margin leverage and cross margin leverage is mainly due to different asset guarantee models, different risk rates, different methods of filling positions, and different methods of closing positions.
Asset Guarantee Model of Isolated Margin and Cross Margin Leverage
Isolated margin leverage is a single position collateral asset (that is, an independent collateral asset). The status of the margin of each position is only affected by the asset balance of the position, independent of other positions.
Cross-margin leverage is the collateral asset for all positions (that is, cross collateral assets), and the margin status of all positions is affected by the asset balance of the entire account.
Risk of isolated and cross leveraged leverage
The loss risk of isolated margin leverage is limited to the maximum loss caused by the liquidation of a single independent position (the maximum amount of loss is the entire margin in the independent account);
The risk of cross-position leverage is that when a liquidation occurs, investors may lose all funds in the entire account, and the risk is high.
How to cover positions with isolated leverage and cross-margin leverage
Each position of the isolated margin leverage is independent. When a position needs to be replenished, even if other independent positions or the overall account has sufficient assets, the position will not be automatically replenished, and investors need to manually replenish the position.
Because the cross-position leverage is a cross-guarantee of assets, when it is necessary to cover the position, it will automatically supplement each other’s guarantees.
How to close positions with isolated leverage and cross-margin leverage
In the isolated position leverage mode, each position is isolated from each other. When the risk of forced liquidation (liquidation) occurs, only this position will be closed, and other positions will not be affected;
Under the cross-position leverage mode, once the risk of forced liquidation (liquidation) occurs, all positions in the entire account will be processed.
Which is better, isolated leverage or cross leverage
Isolated margin leverage, because the collateral assets of each position are limited to a certain amount, so when the market volatility is high and the leverage ratio is high, the risk of liquidation is prone to occur, but the amount of loss is limited;
Cross-position leverage means that all available credits in the client’s account serve as collateral assets. Therefore, as long as the leverage is moderate and the position is properly controlled, there will be no risk of liquidation under normal circumstances. However, once the risk of liquidation occurs, investors will suffer great losses. .
“You can’t have both.” Under the premise that leverage and positions are properly controlled, investors can choose according to their trading preferences (generally, the cross-position model is suitable for traders who are hedging (hedging) and The position mode is suitable for short-term traders).