Difference Between Cross Margin and Isolated Margin in KuCoin Margin Trading

Before starting, you may learn more about KuCoin Margin trading by the video below 👇

KuCoin margin trading allows investors to use borrowed funds to trade one or multiple assets with leverage.  The cryptocurrencies in the trader's account act as collateral for the borrowed funds.  There are two major types of margin trading modes on KuCoin: Cross Margin and Isolated Margin. In this guide, let's look at how each mode works, key differences, and use cases. 

What Is Cross Margin?

Cross margin allows users to use the entire account balance as collateral to back trades, allowing profits from one position to cover losses in another but risking total account liquidation if the account balance dips below the threshold of maintenance margin. Therefore, Cross margin provides flexibility and potentially lower margin requirements across multiple trades.

 

For example, if a trader has a balance of 10 BTC and opens two positions—long on Ethereum with 2:1 leverage and short on another crypto with 2:1 leverage—their total balance supports both positions. 

 

If Ethereum's price drops but the other position profits, the profit can offset the loss, potentially preventing liquidation. However, if both positions incur losses exceeding the maintenance margin level, the trader risks losing the entire 10 BTC, demonstrating cross margin's high-risk, high-reward nature.

What Is Isolated Margin?

Conversely, Isolated Margin allows traders to limit their risk to a specific trade by allocating a part of their funds in their account as collateral for that trade.

This approach ensures that potential losses or liquidations are confined to that particular position without impacting other trades in the portfolio. Primarily used for speculative and highly leveraged trades, it allows traders to closely monitor and control risks by limiting the collateral to just the amount allocated for that trade. In essence, if a trade goes unfavorably, only the funds in the isolated margin are at risk, making it a targeted method for precise risk management in trading. 

 

For example, if a trader has a total balance of 5 BTC in his or her margin account, a trader might use 1 BTC as collateral for a leveraged trade on Ethereum. 

 

If the trade is profitable, only the profits from that 1 BTC are realized. Conversely, if the trade faces a loss, only the 1 BTC is at risk of liquidation, protecting the remaining balance from the trade's outcome.

 

Key Differences Between Isolated Margin and Cross Margin

Here's the table for a detailed comparison between the isolated margin and cross margin.

Aspect	Isolated Margin	Cross Margin
Collateral and Liquidation	Limited to a specific position. Only the allocated funds for a particular trade are at risk for liquidation.	All funds in the account serve as collateral for trades. The entire account balance can be used to prevent liquidation of positions.
Leverage	Isolated margin currently supports leverage of up to 10x, the max leverage for each trading pair differs.	Cross margin currently supports leverage of up to 5x.
Risk Management	Offers granular risk management, allowing allocation of specific amounts to individual trades without affecting the rest of the account.	Combines the risk across all open positions. While beneficial for offsetting positions, it can mean potentially higher losses.
Flexibility	Requires manual addition of funds to increase the margin for a specific position.	Automatically uses available balance in the account to avoid liquidation, offering a more hands-off approach to margin maintenance.
Use Cases	Suitable for traders who want to manage risk on a per-trade basis, especially when they have a high conviction about specific trades and wish to keep risks separate.	More suited for traders running multiple positions that might hedge against each other or for those who want to leverage their entire account balance.

Closing Thoughts 

The decision to opt for isolated margin or cross margin primarily hinges on a trader's individual strategy, risk tolerance, and the level of active management they want to apply to their positions. The proper combination of both in the volatile crypto market could help traders maximize profits and hedge risks in the downside market. However, all leveraged trading carries risks and make sure to do your research and make more informed decisions before choosing any type of margin trading.