Cross margin trading is a sophisticated feature within the futures trading mode that allows traders to utilize their entire account balance as collateral for all open positions. This method provides greater flexibility and capital efficiency, but it also comes with unique risks and operational nuances. This guide explains how cross margin works, its key concepts, and practical strategies for effective use.
How Cross Margin Trading Works
In futures mode, cross margin enables traders to operate across multiple product lines—including spot, margin, futures, perpetual swaps, and options—using a unified collateral pool. By transferring assets into the cross margin account, traders can use the total equity of each cryptocurrency to cover margin requirements for all positions settled in that same crypto. Profits and losses from different positions can offset each other, optimizing capital usage.
However, this approach also aggregates risk. If the equity of a specific cryptocurrency becomes insufficient, it may lead to partial or full liquidation of all positions settled in that asset. For traders seeking to isolate the risk of individual positions, the isolated margin mode is recommended.
Key Asset Metrics and Definitions
Understanding the following terms is essential for effective cross margin management:
- Equity: The total value of your assets, including the balance in the trading account plus unrealized profits and losses from all cross and isolated margin positions, along with the market value of options. It represents your net worth in the account.
- Free Margin: The amount of a specific cryptocurrency available for opening new positions in futures, perpetual swaps, and options (short positions). It is calculated as the maximum of zero or the sum of the crypto balance in cross margin and floating PnL from cross margin positions, minus the "In Use" amount.
- Available Balance: The quantity of crypto available for isolated positions, spot trading, and options (long positions). This is used primarily for order calculation.
- In Use: The portion of assets currently allocated to open orders, active positions, accrued interest, or trading bots. This amount is locked and unavailable for other trades.
- Floating PnL: The total unrealized profit or loss from all margin, futures, and options positions settled in a specific cryptocurrency, encompassing both cross and isolated margin modes.
- Leverage: The ratio of the total position value to the equity available for that crypto. It indicates the degree of exposure relative to your capital.
- Maintenance Margin Ratio: A risk metric that evaluates the health of your account for a specific asset. It compares your available equity (after accounting for open orders and fees) to the maintenance margin and liquidation costs required for your positions.
- Total Equity: The combined USD value of all cryptocurrencies in your account, converted using OKX's pricing methods.
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Trading Rules and Mechanics
In futures mode, traders can select between cross margin and isolated margin modes. Cross margin allows all positions in the same settlement currency to share collateral, while isolated margin separates the risk and PnL of each position.
Order Validation in Cross Margin
- For futures, perpetual swaps, options (short positions), and margin trades in cross margin mode, the order requires that the free margin of the crypto must be sufficient to cover the margin needed for the order.
- For spot trades or options (long positions), the available balance of the crypto must meet or exceed the order amount.
Consider a scenario where a user holds BTC across various positions and open orders. If they attempt to open a new margin position requiring 40 BTC, the system checks whether the free margin (calculated from the account balance, floating PnL, and in-use assets) exceeds 40 BTC. If it does, the order proceeds; otherwise, it fails.
Similarly, for futures trades, the required margin is computed based on contract specifications, leverage, and current price. The order is validated only if the free margin suffices.
Margin Positions in Cross Margin Mode
Position Parameters
Each margin position features several critical fields:
- Assets: The positive quantity of the asset held in the position, excluding the margin amount.
- Available Asset: The portion of assets that can be used to close the position.
- Liability: The total borrowed amount plus accrued interest, denominated in either the base or quote currency depending on the position type.
- Interest: Accrued but not yet deducted interest.
- Average Open Price: The weighted average entry price of the position, adjusted for new entries but not reduced by partial closures.
- Estimated Liquidation Price: The price at which the position might be liquidated. This is a reference value and may not be calculable in complex portfolios.
- Floating PnL: The unrealized gain or loss, computed differently for long and short positions based on the margin currency.
- Initial and Maintenance Margin: The collateral required to open and maintain the position, respectively, influenced by leverage and market conditions.
Using Different Margin Currencies
In cross margin, both currencies of a trading pair can serve as margin. For example, in a BTC/USDT pair, you can use either BTC or USDT to margin long or short positions. The margin remains in your account balance and is not transferred into the position, unlike in isolated margin mode.
Closing Positions
The process for closing positions varies depending on whether the position assets and margin are in the same currency or different ones.
- Same Currency (e.g., long with base currency margin): The available asset for closing includes part of the account equity, depending on whether the coin equity meets the initial margin requirement. Closing can be done via market orders, limit orders, or with reduce-only and reverse position options.
- Different Currency (e.g., short with base currency margin): Only the position assets can be used to close. Selling all position assets closes the position, with any remaining liability covered from the account equity. Reduce-only and reverse position features are also available.
Expiry and Perpetual Futures in Cross Margin
Cross margin supports both hedge and one-way modes for futures. Key position fields include:
- Total Position: The net quantity of contracts held.
- Available Position: The amount not locked in open orders (hedge mode only).
- Floating PnL: Calculated based on the contract type (crypto or USDT-margined) and position direction.
- Initial and Maintenance Margin: Determined by contract specs, mark price, and leverage.
Options in Cross Margin Mode
Traders can hold long and short options positions in cross margin. Important metrics include:
- Options Value: The market value of the position, based on the mark price and contract multiplier.
- Floating PnL: The unrealized gain or loss from the position.
- Margin Requirements: Long positions have zero margin, while short positions require initial and maintenance margin as per OKX's option margin rules.
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Risk Management in Cross Margin
Cross margin employs a dual-layer risk control system: order cancellation by the risk control system and pre-liquidation verification. These measures help maintain account safety and prevent mass order cancellations or liquidations.
Order Cancellation by Risk Control
If an account is deemed risky but not yet at liquidation levels, the system may cancel open orders that increase risk. This includes:
- Canceling all orders that would raise the used equity if the available equity minus used balance falls below the required maintenance margin plus initial margin for open orders and fees.
- Canceling all isolated margin sell orders and options buy orders if the available balance becomes negative.
Pre-Liquidation Verification
Liquidation is triggered when the maintenance margin ratio reaches 100%. The system issues warnings at 300% and cancels orders according to specific rules per business line when the ratio hits 100%. If the ratio remains at or below 100% after cancellations, liquidation begins.
Partial liquidation occurs in three phases:
- Liquidating hedge mode reverse positions: Offsetting long and short positions in the same contract.
- Delta-based liquidation: Reducing risk while keeping the overall delta value stable by liquidating hedged positions with high maintenance margin.
- Unhedged position liquidation: Prioritizing positions that best reduce risk, adjusting position tiers until the account is safe.
For example, an account with mixed futures and options positions might see partial liquidation of offsetting delta positions. If the account remains at risk, unhedged positions are liquidated based on their risk reduction impact.
Frequently Asked Questions
What is the main advantage of cross margin trading?
Cross margin allows traders to use their entire account balance as collateral, increasing capital efficiency by enabling profit and loss offset across positions. This can maximize trading potential but requires careful risk management due to aggregated risk.
How does liquidation work in cross margin mode?
Liquidation is triggered when the maintenance margin ratio falls to 100%. The system first cancels risky orders, then initiates partial liquidation in phases: first hedging positions, then delta-neutral pairs, and finally unhedged positions based on risk reduction effectiveness.
Can I use both cross and isolated margin modes simultaneously?
Yes, in futures mode, you can select cross margin for some positions and isolated for others. This allows you to isolate risk on specific trades while benefiting from shared collateral on others.
What happens if I have a short option position in cross margin?
Short options require initial and maintenance margin. If the account equity becomes insufficient, these positions may be liquidated partially or fully to maintain the required margin ratio.
How is free margin calculated?
Free margin is the maximum of zero or the sum of your cross margin balance and floating PnL from cross margin positions, minus the in-use amount. It determines your ability to open new positions.
Is cross margin suitable for beginners?
Due to the complexity and heightened risk of liquidation across all positions, cross margin is generally recommended for experienced traders who understand leverage and risk management principles.
Conclusion
Cross margin trading in futures mode offers powerful capital efficiency but demands disciplined risk management. By understanding key metrics, trading rules, and liquidation processes, traders can leverage this tool effectively. Always assess your risk tolerance and employ strategies to mitigate potential losses.