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Bybit Learn
Bybit Learn
Intermediate
Jul 21, 2022

A Complete Guide to Cross Margin Trading

In this article, you’ll learn about margin trading and the differences between cross margin and isolated margin trading, which will help you better understand cross margin and how to earn with it. 

What is Margin Trading?

Bybit Margin Trading is a derivative product based on Spot Trading. It allows you to use assets in your Spot Account as collateral to borrow additional funds from Bybit in order to open positions larger than your wallet balance, with up to 3x leverage on the Spot market.

With Margin Trading, all assets in your Spot Account that support Margin Trading can be used as collateral to prevent your Spot Position from being liquidated. When the risk level of your Spot Account reaches a level that triggers liquidation, the system will automatically sell the collateral assets to repay the borrowings in your Spot Account.

What’s the difference between Cross Margin and Isolated Margin Trading?

Under the Cross Margin mode, all available balances in your account can be used as collateral to prevent liquidation. With an appropriate level of leverage, it’s unlikely that a trader’s position will be liquidated, so Cross Margin mode is often used for hedging.

Under the Isolated Margin mode, the margin placed into a position is limited, and the position will be liquidated if the margin falls below the required minimum level. Therefore, liquidation may easily occur under the Isolated Margin mode when high volatility is combined with high leverage. However, a trader’s maximum loss will be limited to the position margin placed for that open position without affecting the account balance.

  • Collateral under the Cross Margin mode is shared by all positions under an account, and backed by all the account’s available balances.

  • Collateral under the Isolated Margin mode is available for a single position only. It’s isolated from other account positions, and is backed by a separate margin account balance.

In summary, Cross Margin mode is more suitable for institutional or experienced traders as a hedging tool, and Isolated Margin mode is better suited to novice traders who want to limit their potential losses.

What’s the difference between Cross Margin Trading and Spot Trading or Derivatives Trading?

Similarities

Advantages

Cross Margin Trading

Spot Trading

Can be bought/sold in the same way.

Share the same candlestick charts and intraday depth.

Both enable users to level up their VIP status based on their trading volume.

Cross Margin Trading supports long/short positions based on market trends.

Cross Margin Trading allows users to borrow more tokens to magnify profits.

Cross Margin Trading is suitable for institutional or experienced traders as a hedging tool.

Similarities

Advantages

Cross Margin Trading

Derivatives Trading

Both Cross Margin Trading and Derivatives Trading support long/short positions.

Cross Margin Trading allows you to use all trading pairs in your leveraged trading account as margin to amplify profits.

For example, if you have a full position in BTC and want to continue buying ETH, you may use BTC as margin and borrow USDT to long ETH.

How Do I Earn With Cross Margin Trading?

You may open a long or short position based on your market views (bullish or bearish). At Bybit, you may use either limit, market or conditional orders for margin trading.

1. Buy Long

If you believe that the price of a trading pair will rise, you may borrow funds from Bybit to buy low and sell high, and then repay the borrowed funds, interest and associated fees and earn the difference. For example, if you’re opening long positions on BTC/USDT, you need to borrow USDT (the quote token) from Bybit to buy BTC at a low price, and sell BTC when its price rises to your expected level.

Notes:

(1) Market orders usually sell at the best price in the market, and can be executed instantly.

(2) When using the Buy Low, Sell High strategy, the profit of a long position is calculated as what remains after repaying the borrowed funds and interest, and subtracting the principal and trading fees.

(3) The aim of opening a long position with margin trading is to buy low and sell high to earn the difference. In order to avoid losses, traders are advised to monitor the market in real time, and to take profit or stop loss (as appropriate) to prevent liquidation.

2. Sell Short

If you believe that the price of a trading pair will fall, you may borrow funds from Bybit to sell high and buy low, and then repay the borrowed funds, interest and associated fees and earn the difference.

For example, if you’re opening short positions on BTC/USDT, you need to borrow BTC (the base token) from Bybit to sell it at a high price. If, after a period of time, the price of BTC falls to your expected level, you may buy BTC at that price, return the borrowed amount and interest to Bybit, and earn the difference. The principle is to sell the borrowed token at a high price and buy it back at a low price to repay the borrowed funds and interest. The bigger the price difference, the more profitable the short position.

Bybit has launched both BTC 3x and ETH 3x Cross Margin trading that supports long/short positions. You can start Cross Margin trading now by choosing the corresponding trading pair in the Spot Trading interface.

BTC/USDT cross margin trading

Margin trading offers the potential for magnified gains with less capital. No matter if you’re going long or short, you can turn a profit if you’re able to make accurate predictions on the price trend. As margin trading involves risks, please evaluate with caution. Ensure that you have the necessary expertise, and are familiar with our website or App before trading. Bybit recommends you develop an appropriate trading plan and apply TP/SL at the right time.

Ready to give Cross Margin trading a go? Sign up on Bybit and start your trading journey with us today.