What is Cross Margin?
Cross margin is a margin mode where your entire account balance serves as collateral for all open positions. Rather than allocating specific amounts to individual trades, all available funds automatically support any position that needs it. If one position incurs losses, your full account balance helps prevent liquidation.
This approach maximizes capital efficiency and provides the strongest defense against liquidation during temporary price volatility. However, it also means that severe losses in one position can consume your entire account balance, potentially liquidating profitable positions along with losing ones.
How it Works
In cross margin mode, your total account equity determines your overall margin level. When you open a position, the protocol considers all available balance as potential collateral. If the position moves against you, losses are absorbed by the entire account rather than a limited isolated amount.
Multiple positions share the same collateral pool. A profitable position can offset losses from an unprofitable one, keeping both positions healthy. This interconnection means your overall portfolio performance matters more than individual positions.
The margin ratio in cross margin considers total equity versus total position exposure. As long as your account maintains sufficient equity relative to all positions combined, no liquidation occurs. This provides more breathing room during volatility but also creates interdependency between positions.
DeFi protocols implement cross margin differently. Some, like dYdX, offer explicit cross margin mode. Others effectively operate as cross margin systems where your deposited collateral backs all activities on that platform.
Practical Example
You have $10,000 in your account using cross margin mode. You open a $50,000 long ETH position and a $30,000 long BTC position. Both positions draw from your $10,000 total collateral.
If ETH drops and your ETH position shows $3,000 in unrealized losses, your account still has $7,000 in equity backing both positions. As long as $7,000 is sufficient maintenance margin for the combined $80,000 exposure, neither position is liquidated.
If your BTC position is profitable by $2,000 while ETH is down $3,000, your net loss is only $1,000, leaving $9,000 in equity. The profitable BTC position helps sustain the losing ETH position.
Why it Matters
Cross margin provides maximum capital efficiency and liquidation resistance. Traders who are confident in their overall directional bias benefit from positions supporting each other. Temporary drawdowns on individual positions are absorbed by the larger account balance.
Professional traders often prefer cross margin for correlated positions where they have high conviction in the overall direction. The shared collateral pool maximizes buying power and minimizes the chance of liquidation during normal volatility.
The risk is catastrophic loss. Unlike isolated margin where losses are capped per position, cross margin can result in total account loss during severe market moves. A position that would have been liquidated with isolated margin might instead consume your entire balance trying to stay alive before ultimately being liquidated anyway.
The choice between cross and isolated margin depends on trading style, conviction level, and risk tolerance. Many experienced traders use cross margin for core positions and isolated margin for speculative trades.
Fensory monitors your cross margin positions to ensure your overall portfolio maintains healthy margin levels, alerting you when combined exposure approaches concerning thresholds.