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Risk warning: Crypto trading is pretty risky especially for beginners. It is highly recommend to study first the concept of crypto trading along with its pros and cons. Make sure to gain enough knowledge before jumping in the risky game of cryptocurrency.
Margin Trading is a concept of borrowing an asset out from the asset that you have collateralized.
Think of it like a loan in the real world, but the difference is that you can use the collateralized asset/amount for trading.
You wanted to buy a certain cryptocurrency that you think can be profitable in the short term but you only have $100 USDT in your account. Now, in your Binance Margin account, Binance will allow you to borrow an asset 3x from your collateral.
Therefore, with your $100 USDT, you can borrow $200 USDT in the platform making you have a total of $300 USDT for trading.
In the examples below, I will be using Future margin trading for easier understanding.
With Cross Margin Mode, all of your positions or trades will be allowed to use your total assets in your Margin account in order for your position to be further away from the liquidation price.
Let's have an example of it;
Let's say that you have $10 USDT in your account and you want to open a long position for BTC with just $1 USDT. Now, because you are in a Cross mode, your liquidation price could be very far away from your position. However, because you are in a Cross mode, when the price doesn't seem to be going in your way and reaches your liquidation price, your position will be liquidated and the platform will take your $10 USDT in your account.
But things are different with Isolated mode. In this mode, your position will only be restricted depending on what amount you inputted in your position.
Here's an example;
You have $10 USDT in your account and you want to make a long position for $1 USDT. Since you are in an Isolated mode, your liquidation price cannot be further away from position compared to Cross mode. But, whenever your position doesn't looking good and reaches your liquidation price, since you are in an Isolated mode with $1 USDT margin, your $1 USDT position will only be liquidated and not the total amount of your account.
I will put this as simple as I can with an example.
In your Margin account using Cross mode, you borrowed $200 USDT with a collateral of $100 USDT.
Then, with your borrowed amount, you buy $100 USDT of BCH and $100 USDT of BTC.
Now, supposing that BTC and BCH dropped it's value of -50% and -25% respectively (just an example) from the price you bought them, and you closed your positions and want to repay the borrowed amount because you wouldn't want your position to get liquidated and loss everything in your account.
But since you have a loss positions from the two worth -25 USDT of BCH and -50 USDT of BTC, you will be paying the platform worth $200 USDT + 75 USDT leaving you only $25 USDT from your initial amount of $100 USDT. That could hurt.
Margin trading is very risky because this could wreck your account and lost your asset. People who uses this type of trading are usually advance or experienced trader who knows how to take advantage of market. So don't be reckless of jumping into it without having any basic knowledge about it.