Cross-Margin Exposure

Cross-margin exposure occurs when a trader uses the total balance of their account as collateral for multiple open positions simultaneously. Unlike isolated margin, where each position has its own dedicated collateral, cross-margin allows for greater capital efficiency by sharing the margin across all trades.

However, this structure increases systemic risk because a loss in one position can lead to the liquidation of the entire account, including other profitable trades. This creates a high level of interconnection between a user's various strategies and the protocol's margin engine.

If a market crash occurs, a user's cross-margin account can be wiped out much faster than if they were using isolated margin. Protocol designers must carefully balance the benefits of capital efficiency against the increased risk of total account bankruptcy.

This model is common in sophisticated derivatives platforms but requires users to have a deep understanding of their risk exposure.