❌ Cross Margin

What is Cross Margin?

Cross margin is a risk management system used in trading derivatives like futures and perpetual contracts. On Perplex, cross margin allows you to use all the available collateral in your trading account to support all open positions simultaneously. This approach maximizes capital efficiency and reduces the risk of liquidation by pooling your funds together.

How Does Cross Margin Work?

In a cross margin system, profits from one position can offset losses in another. This means that the gains from profitable trades can help cover the margin requirements of losing trades, keeping your overall account balance above the required maintenance margin.

Example:

Imagine you have $1,000 in your Perplex trading account and you open two positions:

  • Position 1: Long on Bitcoin (BTC) using $500.
  • Position 2: Long on Ethereum (ETH) using $500.

Now, suppose the market moves as follows:

  • Bitcoin Price Falls: The value of your BTC long position decreases, and the losses are nearing the liquidation threshold for this position.
  • Ethereum Price Rises: Your ETH long position is profitable, increasing your account equity.

In this scenario, the cross margin system automatically uses the profits from your ETH position to cover the losses on your BTC position. As long as your total account equity remains above the maintenance margin requirement, neither position will be liquidated.

Benefits of Cross Margin

  • Efficient Use of Funds: You don't need separate collateral for each position, allowing you to manage your capital more effectively.
  • Reduced Liquidation Risk: Profitable positions support losing ones, decreasing the likelihood of forced liquidation.
  • Simplified Portfolio Management: All positions are managed under a single account balance, making it easier to track your overall risk and exposure.

Important Considerations

  • Risk Exposure: While cross margin reduces the risk of liquidation, it also means that losses in one position can affect your entire account balance.
  • Market Volatility: In highly volatile markets, rapid adverse movements can still lead to liquidation if your account equity falls below the maintenance margin.
  • Active Monitoring: It's crucial to keep an eye on all your open positions and account balance to manage risk effectively.