Trading is one of the most common game in the cryptocurrency space where you can have the chance of gaining a huge amount of money by exchanging one crypto/assets to another. But at the same time, you can also lose with the coin you have because cryptocurrency are volatile - meaning it doesn't have an stable value and it can either go up or go down.
Binance is one of the most famous Cryptocurrency Exchange and said to be the leading platform for exchanging assets as of the moment.
Binance Future Trading
Future trading was added in Binance on September 13, 2019, and since then, the new feature gained a lot of popularity from Binance traders.
Future trading is where you bet on a certain asset or cryptocurrency on whether it will go up or go down. You can also decide how much you will bet in your trade and the leverage you want - the higher the leverage, the more risky it will be.
This feature is considered (personally) as the most risky way to earn money in Binance because if you can earn a huge amount in just a short time here, you can also lose a huge amount as well.
Isolated vs. Cross Margin Mode
In a Future trading account,there are currently two modes on assigning your trade;
Isolated margin mode and
Cross margin mode.
What is Isolated Margin Mode?
In an Isolated Margin Mode, all the margin you assigned in your position is only restricted to the amount you used in your position. So if the margin you assigned falls down lower then the Maintenance Margin Level, your position or trade will closed and will be liquidated.
Let's have an example;
You transfer 20 USDT from your Spot Account to your Futures account. Then you choose Bitcoin Cash (BCH) as the asset you will bet on.
You assigned a full 10 USDT margin in your long position hoping for BCH to go up.
You have entered a position with a price of $400 per BCH with 100x leverage.
After a certain time, the price of BCH falls down to $300, which is more than of your leverage. In that case, your position of 10 USDT will be liquidated but, because you are in an Isolated mode, you only lost 10 USDT making you have only 10 USDT from an amount of 20 USDT in your Futures account.
What is Cross Margin Mode?
Cross margin mode is where all the positions that you will have in your Futures account will be using all of the balances or funds that you have in your Futures account. So whenever a trader get liquidated, it might lose all the balances that it has in its Futures account.
Here's an example;
You have transferred 20 USDT from your Spot Account to your Futures account. Then you made a long position with a margin/amount of 10 USDT hoping again for BCH to go up from a price of $400 per BCH.
Because you are in a Cross Margin Mode, you have a very far liquidation price, let's say your liquidation price is $200.
After an hour of waiting, the price of BCH didn't go as what you have wanted but instead in falls down to $200 - which is your liquidation mark.
And because your liquidation price was hit, your margin of 10 USDT and the remaining 10 USDT from your Futures account will liquidated. Making you lost all your funds in that account.
The purpose of Cross Margin Mode is for the traders to avoid being liquidated easily.
So which one is better?
Both of them are good depending of the users comfort application.
If you are very careful to lost so much, you can either use Isolated mode to gamble just a certain amount. But if you are confident and a risk taker, you can use the Cross Margin Mode to gamble all the funds you have in your Futures account.
But for everyone who wants to start or just started trading in Future Trading, it is better to use the Isolated mode with just a very small margin, only to experience how future trading works and have some ideas or knowledge about it.
And also make sure to start with the lowest leverage to avoid being liquidated early.
Trading is fun yet very risky. So before stepping in the future consequences, make sure you do your own research. Trade with caution.