Beginner’s guide to types of leverage trading- isolated and cross

by Sanju
digital assets

Leverage trading is your trump card when you desire to trade crypto in big positions yet without shelling out a small fortune from your own pocket. Also known as margin trading, trading with leverage crypto allows traders to open large trading positions with the help of borrowed funds. As a crypto leverage trader, you can borrow additional funds from the crypto exchange where you sign up for trading. But should you follow isolated or cross trading with leverage crypto? Each type comes with its own advantages and you need a compact understanding of both to decide which one to go for.

However, before discussing trading with leverage crypto types, let’s have a few words about the concept of “margin” in leverage trading.

Margin in leverage trading

As a crypto exchange (read trading platform) will offer you additional funds to help you open bigger trading positions, the portal expects some kind of collateral from you. This collateral is termed as “margin” in the jargon of trading with leverage crypto.

Now, every trading with leverage crypto account involves two types of margin- initial and maintenance. The first one is the margin that you have to submit to register your trading with leverage crypto account with the crypto trading platform. The other one is the one that you will have to maintain to keep your trading with leverage crypto position active on the crypto exchange platform.

Another thing that you should know here is that in case you encounter losses, the margin will get liquidated. And if the margin gets liquidated, the trading platform will shut down your trading position. However, before shutting down your trading with leverage crypto position, the trading platform will send a warning call to the trader. Now, the trader will decide whether s/he wants to keep the trading with leverage crypto position open. If you have to keep the position open, you will have to deposit an additional flow of margin to your trading with leverage crypto account.

Cross margin

Now, finally, we can delve into the heart of our discussion.  Let’s start with cross trading with leverage crypto.

Cross trading with leverage crypto is a form of margin trade where you go all-in with your whole account balance. So, if you are trading (leverage trading) with, say, $1,000, you will deploy the entire $1,000 for all kinds of open positions. Also called “Spread Margin”, the cross trading with leverage crypto format utilizes Profit & Loss from other positions for supporting a trading position that is likely to get liquidated shortly. Besides, cross trading with leverage crypto format allows traders to utilize unrealized Profit & Loss from other positions as well. However, this particular facility will vary from one crypto exchange trading platform to another. In case, you have plans to make the most of all kinds of Profit & Loss for your all trading with leverage crypto positions- including the unrealized ones- check with your chosen crypto trading platform beforehand.

The cross trading with leverage crypto position will be a wise strategy for traders who want to hedge on already existing trading positions.

There are two other things that you must know about  cross trading with leverage crypto. One, the cross margin trade involves trading with one particular cryptocurrency. The other one is, your leverage trading position is always “Cross margin” by default.

Isolated margin

In isolated trading with leverage crypto, the trader utilizes only his/her initial margin amount for one particular trading position. So, unlike the “cross” counterpart, that utilizes whole account balance- the Profit & Loss from other positions as well- you will only use an allocated margin particularly set for a trading position. This is the reason why this form of margin trading is called “isolated”.

So, based on the example mentioned above, let’s say, $1,000 is your entire trading capital for leverage trade. When you go for cross margin, you allocate the entire amount for opening and saving trading positions. But, in case of isolated trading with leverage crypto, you will only allocate a part of $1,000, say $150.

Another thing that you should know here is that isolated margin allows trading with crypto pairs- something that you don’t get with cross margin.

Which one shall you choose?

Now, there cannot be a two-word answer to this question.  It all depends on your leverage trading goals, vision of profit, and risk-tolerance capacity.

So, if you are aspiring for astronomically high profits and confident about your risk appetite, you can opt for cross trading with leverage crypto. It’s because, with cross leverage trading, you have the window to bring in the entire amount into the trade. If the market seems to be in your favor, you will make a grand profit.

But, don’t forget, the entire scenario will drown to almost nothing if you encounter a loss. So, if you want to play safe and don’t want to waste your money blind, go for isolated leverage. In isolated leverage, you will be able to trade with a small amount. So, even if you encounter a loss, the loss will be limited. Most importantly, the loss won’t leave you stranded and you will always have a backup as you won’t deploy the whole amount in the trade.

Another thing that will decide whether to go for isolation or cross is the type of trading asset that you want for trading with leverage crypto. If you want a pair trade, go for isolated leverage trading. If you want to trade with just one cryptocurrency, opt for cross margin trade.

Wrapping up

On a parting note, it must be said that if you are a new margin trader, start with an isolated margin. It might initially seem to be slightly more complicated than cross, yet it offers a much safer avenue than the other. It’s true that cross leverage trading offers a much bigger window for massive profit but it can also lead you to an equally colossal volume of loss if the market takes a downward swing.

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