In the world of virtual contract trading, participants can buy and sell contracts by depositing a small fraction of the total contract value as collateral. This amount, known as margin, acts as a financial guarantee for fulfilling the contract terms.
Two primary margin systems are commonly used: cross margin and isolated margin. Each method offers distinct features suited to different trading approaches and risk appetites.
Cross Margin vs. Isolated Margin
Cross Margin
In cross margin mode, the initial margin requirement fluctuates with market conditions. It is calculated as:
Initial Margin = (Face Value × Number of Contracts) / (Latest Mark Price × Leverage)
This means your required margin changes as the mark price moves, potentially freeing up or requiring additional funds automatically.
Isolated Margin
Under isolated margin, the initial margin is fixed at the time of opening the position:
Initial Margin = (Face Value × Number of Contracts) / (Entry Price × Leverage)
The margin remains constant regardless of subsequent price changes, helping traders define and limit their risk per trade.
For a deeper understanding of how mark prices work and influence margin calculations, you can explore detailed trading guides.
Key Concepts in Virtual Contract Trading
Mark Price, Index Price, and Order Price
To enhance market stability and avoid unnecessary liquidations during volatile periods, platforms use the mark price to calculate unrealized profit and loss.
- Mark Price = Index Price + Moving Average of Basis
- Basis Moving Average = MA((Best Ask + Best Bid)/2 – Index Price)
This method smooths out short-term fluctuations and provides a more accurate reflection of the market.
Option Contracts
Options grant the buyer the right—but not the obligation—to buy or sell an asset at a predetermined price on or before a specific date. Sellers are obligated to fulfill the contract if the buyer exercises the option.
Platforms often offer both simplified and professional trading interfaces for options, covering major assets like Bitcoin (BTC) and Ethereum (ETH).
Related Trading Products
Spot Trading (Coin-to-Coin)
Spot trading involves exchanging one digital asset for another directly. Major trading pairs often include stablecoins like USDT or USD(S), and cryptocurrencies such as BTC, OKB, and ETH.
Dogecoin (DOGE)
Originally created as a joke in 2013, Dogecoin has evolved into a popular decentralized digital currency. It is based on Litecoin technology and is known for its active community and use in social media tipping.
MXC Extreme Domain
The MXC Foundation focuses on low-power wide-area network (LPWAN) and blockchain cross-chain data technology. Its MXProtocol aims to create a decentralized standard for IoT data exchange and resource allocation.
Grayscale Concept Tokens
These refer to digital assets included in Grayscale Investment’s trust funds. For easier access, many exchanges list these tokens in a dedicated section, allowing users to trade popular institutional-grade assets.
Frequently Asked Questions
What is the main difference between cross and isolated margin?
Cross margin adjusts dynamically with market prices, while isolated margin remains fixed based on your entry price. Cross margin uses pooled funds, whereas isolated margin confines risk to individual positions.
How is the mark price calculated?
The mark price combines the spot index price with a moving average of the basis—the difference between the contract mid-price and the index price. This reduces the impact of short-term volatility.
What are option contracts in crypto trading?
Options allow traders to buy or sell assets at set prices in the future. Call options bet on price increases, and put options on decreases. Traders pay a premium for this right without being forced to execute.
Is spot trading the same as margin trading?
No. Spot trading involves immediate exchange of assets at current prices. Margin trading uses borrowed funds to amplify exposure, requiring collateral and involving interest or leverage fees.
What are Grayscale concept tokens?
These are cryptocurrencies held by Grayscale Investment trusts. They are often seen as institutional-grade assets and include major coins like Bitcoin and Ethereum, along with other established tokens.
Why is Dogecoin considered significant?
Despite its humorous origin, Dogecoin gained traction due to its low transaction fees, active community, and use in micro-tipping. It illustrates how community support can drive adoption in crypto.
Understanding margin mechanisms and related products is essential for effective risk management in virtual contract trading. Always consider your financial situation and risk tolerance before participating, and seek professional advice if needed.
This article is for informational purposes only and does not constitute financial, legal, or investment advice. Digital asset investments are high-risk and may result in significant losses.