What is Cross Margin?
Cross margin is a margin mode where your entire account balance is available to support all open positions. All positions share the same margin pool, and losses in one position can be offset by available funds or gains in other positions. This provides maximum flexibility in preventing liquidations but puts your entire account at risk.
How Cross Margin Works
In cross margin mode, the exchange considers your total account equity when calculating margin requirements and liquidation thresholds. If one position moves against you, profits from other positions or unused account balance automatically support it.
For example, with $10,000 in your account across three positions, losses in Position A can be absorbed by profits in Position B or by your free margin. Liquidation only occurs when total account equity falls below total maintenance margin requirements for all positions.
Benefits of Cross Margin
Cross margin offers several advantages. Greater liquidation protection means positions survive larger adverse moves by drawing on the entire account. Capital efficiency allows the same funds to support multiple positions simultaneously. Unrealized profits in one position can offset losses in another automatically.
For traders running hedged or diversified portfolios, cross margin allows natural position netting and reduces margin requirements compared to maintaining isolated positions.
Risks of Cross Margin
The significant risk is that one bad trade can drain your entire account. Unlike isolated margin where losses are capped, cross margin liquidation can wipe out everything. A single catastrophic position can consume all available margin, potentially liquidating all positions.
This makes position sizing and overall account risk management crucial. Traders using cross margin must consider total portfolio risk, not just individual trade risk.
Cross Margin Portfolio Management
Effective cross margin trading requires viewing your account holistically. Monitor total account exposure, not just individual positions. Set account-level risk limits, for example never risking more than 20% of account on any single trade. Understand how correlated positions can compound risk during market moves.
Consider that during volatile periods, multiple positions might move against you simultaneously, requiring more margin than anticipated.