Cross Margin and Isolated Margin – Your Superpowers in Margin Trading


Since the launch of CEX.IO Broker to the public, we’ve observed how traders use the platform. And there is one feature that provides users with an extraordinary level of flexibility that we want to highlight more. 

Some people are already taking advantage of it. The result is – better trading strategy execution. In practice, it means more gains, fewer losses.

If you are a beginner, this feature gives you a better training ground and a room for mistakes. If you are advanced – it is your opportunity to experiment while managing your risks. 🧪

So what is it? – Multiple trading accounts

What’s the big deal? And what are those “cross margin” and “isolated margin” terms? More so – how do they become your superpowers when you trade? – read on!

Multiple Trading Accounts

Using multiple trading accounts on CEX.IO Broker, you can take advantage of the flexibility provided to you by cross margin and isolated margin on the platform. So let’s get the first part straight. Why and how do you create multiple trading accounts

 

🤟Why have multiple trading accounts?

Each trading account that belongs to one user on CEX.IO Broker has its own Balance, Equity, Margin Level, and other key metrics we went into details in the last post. That means each account lives its own separate life, independent from other trading accounts. Its financial results, gains or losses, are also separate and don’t mix with the results of other trading accounts.  

Here are some, but not all, possible setups where multiple trading accounts make a lot of sense:

👉 One trading account takes bigger risks. Another one – has a more conservative approach.

👉 One account has short duration trades to capture the small price moves. Another one – keeps the positions open for weeks.

👉 You trade BTC/USD pair on one trading account. And ETH/EUR – on another. 

👉 You do some crazy experiments and test hypotheses on one trading account. And you can meticulously execute an already proven trading strategy on another. 

The scenarios can continue. And you do not need to keep the number of accounts at two – you can go higher and have up to 5 separate trading accounts.  

Each trading account lives its own separate life, independent from other trading accounts.

With multiple trading accounts, your different strategies do not intermix and interfere with each other.

That can be tremendously useful for accounting purposes – you know with precision how each of your strategies is performing. You can also separate experimentation from disciplined money-making. And, importantly, if things start going haywire on one trading account, your losses are isolated there and don’t mess up your more successful positions on your other accounts. So multiple trading accounts are very helpful in risk management. But more on that later!

🤟How to create an additional trading account?

A Live trading account is not useful without some “juice” on it – the funds you can use to trade with. So, we’ve put creating a trading account and funding it close to each other in CEX.IO Broker. 

In the trading terminal, you can press the green button “Make a Deposit” and choose “+Add new account”. And you have a brand-new live trading account! ✨

Like so:

As a side note – you don’t need to fund the trading account right away. Even if you close out the popup after pressing “+Add new account” – you already have a new account created and you can fund it later on. The funding currency, by the way, can be different in different accounts too (hint, hint, we’ll be adding more trading account currencies soon!😉).

And now that you are equipped with a couple of trading accounts, let’s get into the details of this risk management flexibility that you suddenly get.

That’s where cross margin and isolated margin enter.

Cross Margin and Isolated Margin 

To illustrate the concepts of cross margin and isolated margin, let’s imagine you have two trading accounts.

You use one for keeping your positions open for a few days or so – to catch the larger price movements. The second is for the positions that last no longer than a few hours during a single day. 

🔀Cross Margin

You have cross margin within each of these accounts. What does it mean?

Your trading account allows you to open multiple positions at once. The positions can be in one direction (all Shorts or all Longs) and even in the opposite directions (some Shorts and some Longs).

In many other platforms, when you buy or sell more contracts at a different price than the position you’ve originally entered into, you only see the aggregated (netted) resulting position.

Unlike those other platforms, CEX.IO Broker lets you see each of your positions separately and easily understand how each of them performs at every moment of time. 

For example, in the image below, you can see some profitable and non-profitable positions. Whenever you like the financial result of one position, you can close it, leaving the rest open.

What’s important here, though, is that the Margin Level is displayed for the entire trading account. It is the key metric that determines the state of affairs on your trading account and is calculated as Equity / Used Margin. You can remind yourself how Margin Level works HERE. But the important thing is that you need to keep it above 25% to avoid the automated liquidation of your positions. 

So, to arrive at the key metrics,  the money-making and money-losing positions on the trading account are all combined. And their net unrealized profit or loss (the FPL, floating profit & loss) is reflected in the Equity. The Equity, in turn, directly affects the Margin Level.

What does it mean?

Your money-losing positions bring your Margin Level down🔻. Your money-making positions boost the Margin Level up🔺. Since Margin Level on the trading account shows as a combined metric for all open positions, the positions with gains help you carry through the misfortunate times for the money-losing positions without having them liquidated. In other words, good performers help bad performers stay afloat longer, giving them a chance to get better. That’s your cross margin!

In cross margin, the gains of one position help satisfy the margin requirements of the other position. Of course, if all positions lose money or the gains of winning positions are not sufficient to keep the Margin Level above 25%, you need to resort to other methods to avoid liquidation. Those methods could be closing positions or adding more funds. However, cross margin by itself is helpful – it allows you in many cases to outlast the periods where the price works against you and to turn losing positions into profitable ones.

In cross margin, the positions with gains help you carry through the misfortunate times for the money-losing positions without having them liquidated.

⬆⬇Isolated Margin

So what about isolated margin? Back to our setup with two trading accounts. Between these two accounts, margins are isolated. That means each of the accounts has its own key metrics that do not influence each other. Margin Levels on both accounts are completely separate. 

What do separate Margin Levels for different trading accounts mean?

Imagine, you’ve made some wrong moves in your account with the short-term positions. 🥴You’ve rushed. Listened to some poor advice on Telegram. Did not think the whole thing through. Now you are losing badly there. 

At the same, on your trading account with positions you keep open for a while – things are going great👍

The isolated margin between separate trading accounts means that the profits on your more successful account are not going to be “eaten” by the losses on your less successful account. Each trading account is on its own, without “subsidizing” one another.

So in case of a bad liquidation on one trading account – its losses are really limited to what’s on it. They will not affect the balance of another trading account.  

Put it simply, isolated margin helps you limit your losses and preserve your gains between separate trading strategies. With such isolation, you can execute those strategies with accountability and discipline and measure the results with precision. 

Isolated margin helps you limit your losses and preserve your gains between separate trading strategies.

The Experimenter and Risk Manager in You

Of course, you can execute all your strategies and experiment on the same trading account. But what a mess would that have been!

😳Big trades, small trades, different currency trades, long-term trades, swing trades all in the same place. Makes it so much harder to keep an eye on everything in the already fast-paced environment!   

Multiple trading accounts bring a beautiful and neat order to your trading. All strategies are separate and organized. Risks – compartmentalized. 

💫

Within one trading account, where positions have similar goals and follow the same principles (whichever way you define them) – they have a “shared responsibility”. You can think of it like a tightly-knit community. If one is hurting, the other one provides support for the time being. 

Between trading accounts – it’s like the relationships between the neighboring towns. If there is a fire in one – it’s the people of that town that will rush to put it out first. And people in a different town might not even notice it. 

That said, though the neighbors of two towns care for their respective towns first, they still also care for the forest they share together.

Similarly, you also care for the net result of all your trading activities combined. And sometimes the profits of one trading account may become funds for experimenting and making mistakes on the other. And those very mistakes that would eventually help you work out a new strategy that will make you money in the long term.

Simple and elegant setup with multiple trading accounts affords you that experimenter’s mindset that can be combined with wise risk management.

You don’t need to choose between the curious exploration of opportunities and the disciplined approach to controlling your risks. You can do both 💁🏻‍♀️.

You don’t need to select either the cross margin or isolated margin. With multiple trading accounts, you can have both 💁🏻‍♀️. And that is quite a superpower for you to use!

🔥Trade wisely, manage your risks, and always learn with broker.cex.io🔥

See you in the market!

The post Cross Margin and Isolated Margin – Your Superpowers in Margin Trading appeared first on CEX.IO Official Blog.



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