Cross Margin Mechanism

A cross margin mechanism allows a trader to use the total balance of their account as collateral for all open positions. Unlike isolated margin, where collateral is restricted to a single trade, cross margin aggregates the equity across the entire portfolio.

This approach provides greater flexibility and reduces the likelihood of liquidation for individual positions during temporary price fluctuations. However, it also introduces the risk that a loss in one position can drain the entire account balance, potentially leading to the liquidation of all open trades.

This mechanism is common in sophisticated cryptocurrency derivatives exchanges. It requires active management to ensure that overall portfolio risk remains within acceptable limits.

The mechanism relies on real-time mark-to-market accounting to assess solvency.