In the world of cryptocurrency trading, managing risk and capital efficiency are top priorities for traders. A popular approach to achieving this is through a mechanism known as Cross-Collateral Mode. This system allows users to use multiple types of collateral assets to back their positions in USDⓈ-Margined contracts, providing greater flexibility and potentially higher capital efficiency.
This article provides a comprehensive overview of how Cross-Collateral Mode functions, its benefits, associated risks, and practical guidance for its use.
What is Cross-Collateral Mode?
Cross-Collateral Mode is a feature that expands the types of margin available for USDⓈ-Margined contracts. It enables traders to use different stablecoin assets interchangeably as collateral across various perpetual and futures contracts.
In a typical exchange setup, USDⓈ-Margined contracts are divided into types like USDT contracts and USDC contracts. Cross-Collateral Mode allows the margin from these different stablecoins to be pooled together. All collateral assets are converted into a USD valuation, creating a shared margin pool. This means profits in one position can help offset losses in another, significantly improving overall capital utilization.
It is important to note that this feature generally only works in Cross Margin mode. You typically cannot enable or disable Cross-Collateral if you have any open positions or pending orders.
For traders who prefer to use a single asset for their margin, a Single-Asset Margin mode is available. This single-asset mode often supports both Cross Margin and Isolated Margin options.
Single-Asset Margin Mode vs. Cross-Collateral Mode: How to Switch
Navigating between these two margin modes is a straightforward process on most trading platforms.
- On the USDⓈ-Margined Futures trading page, locate and click the "Preferences" or "Settings" icon, usually found in the top-right corner.
- Within the settings menu, find the option for "Margin Mode."
- Here, you will see the choice between "Single-Asset Margin Mode" and "Cross-Collateral Mode."
The default selection is usually "Single-Asset Margin Mode." In this mode, you can only use a specific asset (e.g., USDT) as margin for its corresponding contract (e.g., USDT-margined contracts).
A key advantage of Cross-Collateral Mode is its automatic conversion feature. If the balance of one margin asset falls below a system requirement, other assets within the USDⓈ-Margined account can be automatically converted to cover it, based on predefined rules.
Crucial Considerations Before Switching:
- Open Positions/Orders: You cannot change your account mode if you have any open positions or pending orders in your USDⓈ-Margined Futures account.
- Trading Bots: If you are running automated strategies like Grid Trading, you will likely be unable to enable Cross-Collateral mode and will receive a notification.
- Isolated Margin Positions: If any of your contracts are in Isolated Margin mode, you will need to manually switch them all to Cross Margin mode before you can activate Cross-Collateral Mode.
While Cross-Collateral Mode can enhance capital efficiency, it also amplifies risk. It is vital to thoroughly understand the guidance provided in the platform's informational pop-ups before activating this feature. 👉 Explore advanced risk management strategies
How to Check Your Current Margin Mode
If you have successfully activated Cross-Collateral Mode, it will be clearly indicated on your interface. On the margin and risk ratio display, you should see a prominent label such as "Cross-Collateral" or "Portfolio Margin," signaling the mode is active.
In this mode, your total margin balance is shared across all open positions. This makes it critical to monitor your Margin Ratio closely to avoid liquidation. If your account's margin ratio reaches 100%, all positions within the cross-collateral pool are subject to liquidation.
The margin ratio is calculated as follows:
Account Margin Ratio = Account Maintenance Margin / Account Equity
- Account Maintenance Margin: The sum of the maintenance margin required for all USDⓈ-Margined contracts in Cross Margin mode, valued in USD.
- Account Equity: The total value of all assets in your USDⓈ-Margined Futures account, valued in USD.
How to View Your Asset Balances
Platforms provide a dedicated section to monitor your assets. On the trading page, next to the order history and position tabs, you will usually find an "Assets" tab. This section lists all assets that can be used for cross-collateral, along with key information like:
- Available Balance
- Wallet Balance
- Unrealized Profit & Loss (PNL)
- Margin Usage Ratio
Calculating Margin Ratio in Cross-Collateral Mode: An Example
Understanding the margin ratio calculation is essential for risk management. Let's consider a simplified example. Assume the following market prices and conversion rates for stablecoins:
| USDT | USDC | |
|---|---|---|
| Asset Price | $0.99 | $1.00 |
| Bid Rate | 0.9801 | 1.00 |
| Ask Rate | 0.99495 | 1.00 |
A trader has:
- A 0.5 BTC long position on a BTCUSDT perpetual contract (100x leverage, 0.8% MMR)
- A 20 ETH long position on a ETHUSDC quarterly contract (50x leverage, 1.0% MMR)
- Wallet Balances: 200 USDT, 220 USDC
- Mark Price: BTC at $19,000 USDT, ETH at $620 USDC
Step 1: Calculate Unrealized PNL
- BTC PNL = 0.5 * (19,000 - 20,000) = -500 USDT
- ETH PNL = 20 * (620 - 600) = +400 USDC
Step 2: Calculate Asset Equity
- USDT Equity = 200 - 500 = -300 USDT
- USDC Equity = 220 + 400 = +620 USDC
Step 3: Calculate Total Account Equity (in USD)
Account Equity = Σ min(Asset Equity Bid Rate, Asset Equity Ask Rate)
Account Equity = [-300 0.99495] + [620 1.00] = 321.515 USD
Step 4: Calculate Total Maintenance Margin (in USD)
Maintenance Margin = (0.5 19,000 0.008 0.99495) + (20 620 0.01 1.00) = 199.61 USD
Step 5: Calculate Margin Ratio
Margin Ratio = (Total Maintenance Margin / Total Account Equity) * 100%
Margin Ratio = (199.61 / 321.515) * 100% = 62.08%
This ratio helps the trader gauge their proximity to a liquidation event.
Automatic Asset Conversion
A core component of Cross-Collateral systems is the automatic conversion mechanism. This process helps maintain the required balance of different collateral assets.
If the balance of one margin asset (e.g., USDT) falls below a predefined threshold, the system will periodically convert a portion of your other surplus assets (e.g., USDC) into the needed asset. This process is handled by the exchange's matching engine at regular intervals and is designed to help prevent liquidations by ensuring your margin requirements are met.
Frequently Asked Questions (FAQ)
What is the main advantage of using Cross-Collateral Mode?
The primary advantage is increased capital efficiency. By pooling the value of different stablecoin assets into a single margin pool, unused margin from one position can support others, and profits can help offset losses. This allows for more flexible positioning without needing to allocate separate margin to each trade.
Can I use Isolated Margin with Cross-Collateral?
No, Cross-Collateral Mode requires all positions to be in Cross Margin mode. Isolated Margin positions, which isolate the risk of a single position, are incompatible with the shared nature of the cross-collateral pool. You must switch all contracts to Cross Margin before enabling this feature.
What happens to my margin ratio if the market becomes volatile?
High volatility directly impacts your margin ratio. If the market moves against your positions, your unrealized losses increase and your Account Equity decreases. This causes your margin ratio to rise. If it reaches 100%, your entire portfolio of cross-collateralized positions is at risk of liquidation.
How does automatic conversion work, and can I control it?
The system automatically converts surplus assets into deficit assets when a balance falls below a threshold. This process is automated and typically cannot be manually controlled on a per-trade basis. It is a background mechanism to ensure the health of your margin account.
Is Cross-Collateral Mode riskier than Single-Asset Margin?
Yes, it carries a different and potentially greater risk profile. While it improves capital use, it also links the fate of all your positions. A significant loss on one trade can draw margin away from other profitable positions, increasing the risk of a portfolio-wide liquidation event. It is crucial for traders to understand this inherent risk. 👉 Get detailed guides on managing trading risk
Who is Cross-Collateral Mode best suited for?
This mode is best suited for experienced traders who manage a diverse portfolio of positions and have a firm understanding of leverage and risk management. It is less suitable for beginners or those who wish to strictly limit the risk on individual trades.