Cross Margin Protocols

Cross margin protocols allow traders to use the entire balance of their account as collateral for multiple positions. This provides greater capital efficiency compared to isolated margin, where collateral is locked for each individual trade.

However, it also increases the risk of a total account wipeout if a single position moves significantly against the trader. In the event of a large loss, the cross margin engine will automatically use the remaining funds in the account to cover the shortfall, potentially liquidating other profitable or neutral positions.

This requires a sophisticated risk management system that can monitor the health of the entire portfolio in real time. It is a common feature in both centralized and decentralized derivatives platforms.

The design of these protocols must carefully balance the desire for flexibility with the need to protect the platform from insolvency and ensure fair liquidation procedures for all participants.