Cross Margin Risks

Cross margin is a risk management feature where the collateral in a trading account is shared across all open positions. While this can prevent individual positions from being liquidated due to temporary price swings, it introduces the risk of the entire account being wiped out.

If one position suffers a significant loss, it can consume the collateral intended to support other positions, leading to a cascade of liquidations. This contrasts with isolated margin, where each position is collateralized independently.

Cross margin requires more sophisticated risk management because the failure of one trade can compromise the whole portfolio. It is preferred by some traders for its capital efficiency but is inherently riskier in volatile markets.

Understanding the mechanics of cross margin is vital for maintaining account solvency. It highlights the importance of diversifying risk rather than concentrating it in a single account.