I. Margin Modes
In futures trading, traders are required to allocate a certain percentage of margin as collateral for their trading positions. The margin mode is divided into two distinct categories: cross margin and isolated margin.
Cross Margin
In this mode, all positions utilize the collateral present in the contract account collectively. It enables traders to use the total margin in their account to support all positions, avoiding a complete account liquidation stemming from losses in a single position.
Isolated Margin
In the isolated mode, a predetermined quantity of margin is allocated to each position based on the user’s settings. If a position’s margin falls below the maintenance margin level, it will be forcibly closed. Here, one has the flexibility to individually increase or decrease the margin for each position.
II. Position Modes: Merging and Splitting
Position modes establish the relationship between multiple positions opened in the same direction with the same trading pair. They are differentiated into merging and splitting modes.
Merging
In this mode, positions in the same trading pair and direction are consolidated into one position. It facilitates easier management by presenting multiple positions as one unified entity.
Splitting
In contrast, the splitting mode permits traders to open numerous distinct positions in the same trading pair and direction (either long or short) without merging the new positions with existing ones. Each position maintains its unique set of stop-loss and take-profit settings, as well as independent margins and leverages.
III. Connection and Distinction between Margin and Position Modes
Connection
Both margin and position modes are tightly knit with a trader's financial management and risk control strategies. The different modes assist traders in selecting the most appropriate trading approach, conforming to their risk tolerance and strategy.
Distinction
Margin Modes focus on the proportion and management of the required margin. While the cross margin utilizes the total account margin to back all positions, the isolated margin dedicates specific margins to individual positions.
Position mode (Merge/Split) resolves relationships between multiple positions moving in the same direction. In splitting mode, each position is independent, whereas merging mode consolidates positions moving in the same direction into a single entity.
IV. Types of Futures Trading Models
Based on various combinations of margin and position modes, futures trading can be segmented into four main types: Merging Cross Margin, Merging Isolated Margin, Splitting Cross Margin, and Splitting Isolated Margin.
Merging Cross Margin Mode
Appropriate for traders aiming to combine several open positions into a single one, creating a comprehensive representation of their positions, regardless of them being long or short.
Merging Isolated Margin Mode
Contrary to the merging cross margin mode, this suits traders desiring flexibility in adjusting leverages and margin allocation, allowing for self-directed modification of margin allocation according to the risks of individual positions.
Splitting Cross Margin Mode
Fitting for traders aspiring to hold multiple separate positions under the same trading pair. Each new position manifests as a new entity, independent of others, and settles individually.
Splitting Isolated Margin Mode
Similar to splitting cross margin but affords traders the privilege to individually amend margins and leverages in accordance with each position’s risk profile. This mode is for traders seeking finer control over risk management.
These modes underline the versatility and adaptability of futures trading models, empowering traders with choices to align with varied strategies and risk preferences.
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