Margin - Isolated and Cross Margin
While traders trade derivatives, margin refers to the amount of asset you need to deposit into your leveraged position. Initial Margin and Maintenance Margin refers to the initial minimum amount of assets you need to enter a position and the minimum amount of assets you need to keep that position away from liquidation. At BaseFEX, you can choose two types of margin:
- Isolated Margin: Margin accredited to a position which is restricted to a certain amount. If the margin falls below the Maintenance Margin level, this position will be liquidated. Once your position gets liquidated on cross margin you will lose everything. However you can always add or remove your margin.
- Cross Margin: This is the margin shared between your open positions. A position might take more margin from your total account balance to avoid liquidation.
If you choose a Isolated Margin, your liability is limited to the initial margin posted. When the liquidation happens, any Available Balance you have will not be used to add margin to your position.
While isolating the margin your position uses, you are able to limit your losses to the initial margin set, and then compensate when your short-term speculative trades go wrong. Due to market volatility, those highly leveraged positions might lose very quickly. BaseFEX tries its best to avoid liquidation from occuring, but highly leveraged positions are more likely to be liquidated. For example, a position with 50x leverage will be liquidated after a 2% move against it.
You can manage your leverage with the slider on the left of the front page.
Setting and Adjusting Isolated Margin
At BaseFEX, Cross Margin is set as default. You can switch to Isolated Margin by pressing the order controls in the left side of the Trade dashboard. The higher the leverage, the less margin is assigned to that position. You should notice that the leverage will be saved for your contract, even if the position is liquidated.
When you choose Isolated Margin for your position, the margin assigned to that position is adjustable. Thus you can choose the leverage and liquidation price. You can check your liquidation price at Open Positions, the information will be updated whenever you change your leverage.
Isolated Margin and Mark Price
Due to high market volatility or under extreme bull and bear markets, the actual price might be traded very differently from the Mark Price.
If you buy or sell at a price that is very far from the Mark Price, you will see your unrealized loss immediately after the position opens, yet this does not mean that your money has lost. We suggest that under extreme market conditions, you should pay close attention to your liquidation price and try not to use the maximum leverage on the Isolated Margin. If you do then your position might be liquidated immediately upon its opening and you might incur unrealized loss.
If you choose Cross Margin, you can use the full amount of funds in the Available Balance to avoid liquidation. The realized PNL from other positions can help in adding margin on your losing position.
You might choose this method to hedge your existing positions, or do arbitrage and avoid the exposure on one side of your trade when a liquidation happens.
All positions at BaseFEX are set to choose Cross Margin initially.
BaseFEX does not offer portfolio margining. Your unrealized profit cannot be used to offset your unrealized loss, or to open new positions as margin. If you want to trade the spread between two derivative contracts that share the same underlying asset, you need to realize your profit by closing a position in order to cover the loss of another contract.