Cross-Collateralization Rules

Cross-collateralization rules allow traders to use the assets in their entire portfolio to support individual leveraged positions. Instead of isolating margin for each trade, the gains and losses across all positions are aggregated, and the total collateral is used to maintain the overall account health.

While this can increase capital efficiency, it also significantly increases risk, as a loss in one position can lead to the liquidation of the entire portfolio. This rule is common in many centralized crypto exchanges and some DeFi protocols.

Traders must be highly disciplined when using cross-collateralization to avoid losing their entire account due to a single bad trade. It requires a sophisticated understanding of portfolio-wide risk and the impact of price correlations between different assets held in the account.