Understanding Cross Margin
Cross Margin, also known as “Spread Margin,” is a margin method that utilizes the full amount of funds in the available balance to avoid liquidations.
Any realized profit and loss statement (P&L) from other positions can help add margin to a losing position.
Cross Margin Trading
Cross margin means that the user’s funds are kept in one pool, and all their positions use this pool as collateral.
This simplifies collateral management since users don’t need to add or remove a margin for each position.
However, using this method with caution is crucial because, in this model, the P&L for one position affects all other positions.
Interplay of Leverage, Position Size, and Liquidation
In a scenario where the user has several highly leveraged positions, a single position going against the user can put others at risk and potentially lead to liquidations.
If you have only one position, liquidation will result in losing all your margins.
And If you have multiple positions, the margin loss would be proportional to the size of the most prominent position.