A cross-margin system uses a trader’s entire account balance as collateral for all open positions. This contrasts with isolated margin, where collateral is allocated to individual positions. In a cross-margin setup, profits from one position can offset losses in another, thereby reducing the risk of liquidation for single positions. The system pools available margin across multiple trades to maximize capital efficiency. It automatically draws from the total balance to prevent margin calls on specific assets.
Context
Crypto news often discusses cross-margin systems in the context of derivatives trading and risk management on digital asset exchanges. The primary debate centers on the increased systemic risk posed by such systems during periods of high market volatility. A critical future development involves exchanges enhancing their risk engines and offering more granular control over cross-margin settings. This impacts traders’ exposure and platform stability.
The unified cross-margin primitive eliminates fragmented collateral across DeFi venues, fundamentally optimizing portfolio-wide risk and capital utilization.
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