Margin Trading Modes

 MARGIN TRADING MODES 

Margin trading allows arbitrage traders to open positions larger than their own funds by using borrowed funds.

Margin — is the amount a trader uses as collateral for open positions. Simply put, margin = collateral amount.

It shows how much risk the trader is willing to take in case of an unfavorable market move. Different margin trading modes allow you to manage this risk in different ways. Below, we will review two main modes.

4.11.1 ISOLATED MARGIN

In isolated margin mode, the collateral deposited for a specific position is isolated from the trader’s overall account balance.

This means that if the market moves against you, losses will be limited to the amount allocated to that specific position.

RECOMMENDATION: this is exactly the margin mode we will use in futures arbitrage, because it allows you to control risk and limit potential losses.

4.11.2 CROSS MARGIN

Cross margin uses your entire available futures account balance to support positions and prevent liquidation.

In other words, if the market moves against you, all of your funds will be used to cover losses.

NOTES:

1. We do not use this type of margin trading for futures arbitrage. Although it can help avoid liquidation by using all available funds, it also significantly increases the risk of losing your entire balance.

2. When you start doing futures arbitrage, do not forget to switch to isolated mode. Exchanges usually default to cross margin. Please stay vigilant.