In the context of leveraged trading (be it futures or margin trading), margin refers to the amount needed to enter into a leveraged position. There are three main approaches to margining that are adopted by exchanges. These are Isolated Margin, Cross Margin and Portfolio Margin. Portfolio Margin is the most advanced and is not offered by most crypto exchanges. In this article, we are going to concentrate on Cross Margin and Isolated Margin.
Understanding the mechanics of Cross Margin and Isolated Margin can help traders to use their trading capital more efficiently and avoiding preventable liquidations of open positions. We are also going to cover how a trader can use Auto Margin Top-Up feature on Delta Exchange to use it create Cross Margin like benefits.
In Cross Margin the entire available balance is shared across all the open positions in the account. The account is considered to be sufficiently margined as long as the combined maintenance margin requirements of the open positions are lower than the available balance. This design has the following ramifications:
In Isolated Margin, each position has a dedicated margin allocated to it. When a position is opened in Isolated Margin, the trader is required to allocate margin equal to or greater than the Initial Margin to this position. This allocated margin is referred to as Position Margin. Any unrealised profit/ loss in this position has no impact on any other open positions. Further, if unrealised losses deplete the position margin, it will be liquidated even if the trader has additional balance in his account.
Isolated Margin is especially useful in case of speculative trades placed at high leverage. Although Isolated Margin positions have higher liquidation risk, the loss is limited to the Position Margin put up and not the entire available balance.
At present, Delta Exchange only offers Isolated Margin. However, a trader can combine Isolated Margin with Auto Margin Top-up to create Cross Margin like behavior. If Auto Margin Top-Up is enabled for a position, whenever it is about to go into liquidation, additional margin is added to the position from the Available Balance. A trader can selectively enable Auto Margin Top-up for some positions and run the rest on Isolated Margin. This gives additional flexibility to traders in managing their positions.
Click here to know more about Auto Margin Top-Up on Delta Exchange.
The video tutorial below shows how a trader can enable the Auto Top-Up Margin feature for an existing position:
One can also enable the Auto Top-Up Margin feature for all new positions taken on Delta Exchange. This can be done through the following steps:
My Account > Preferences > Margin Settings > Auto Margin Top-Up