How to Choose Position Modes of Futures?

I. The concepts of cross position and isolated position

1.Cross position

In the cross position mode, a cross-position account supports all cross-position trading pairs which share the margin. If a liquidation occurs, all assets will be liquidated.

2.Isolated position

In the isolated position mode, a trading pair corresponds to an independent position, which means that the position margins are isolated from each other, and the profit, loss and margin rate are calculated independently. If one position is liquidated, it will have no effect on other trading pairs.

II. The differences between cross position and isolated position

III. How to choose the best position mode in futures transactions

In the use of account funds, the cross-position mode requires all account funds to be utilized as margin and shared by multiple futures positions. The isolated position mode is that each account calculates the margin separately, and the profit and loss do not affect each other. In other words, the cross position means that all the eggs are placed in one basket, while the isolated position scatters the eggs into several baskets.
In terms of the risk of forced liquidation, the cross position can be compared to “grasshoppers tied to the same rope”. When the margin is insufficient, the only basket will fall apart, and as a result all the eggs will be broken, and the account money will be totally lost. The isolated position holds several independent baskets, and if one falls, it will not affect the eggs in other baskets.
Generally speaking, the cross-position model is more suitable for hedging investors, and for institutions or experienced users as a hedging tool, while the isolated position model is more appropriate for short-term transaction investors, and more helpful for novice users to limit loss within a range so as to better implement the risk controlling strategy.

IV. Summary

As the cross position and the isolated position are inevitable actions in futures transactions, it is a must to understand the distinctions and connections between them, so that we can control position risk within a reasonable range, and make the most appropriate position opening choice.
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Disclaimer
This article is for informational purposes only and such information provided by Gate.io does not constitute any investment advice and is not responsible for any of your investments. Contents such as technical analysis, market judgment, trading skills, and trader sharing may involve potential risks, investment variables and uncertainties. This article does not provide or imply any opportunities for guaranteed returns.