Picking a margin mode means deciding what collateral can absorb losses before a perpetual futures position is closed. A perpetual future is a derivatives contract that tracks a market without an expiry date. This guide focuses on that choice, while the play-money terminal shows how a trade is entered, the market list shows BTC, ETH, SOL, DOGE and PEPE perpetuals, the play-money portfolio shows equity, used margin, entry price, liquidation price, and unrealized PnL, the play-money wallet records funding payments, and the liquidation price guide covers the math in detail.
How isolated margin and cross margin use collateral
Margin mode decides where the collateral for open perpetual futures positions sits. Collateral is the balance set aside to cover losses on a derivatives position.
With isolated margin, each position has its own margin bucket. Only the amount assigned to that position supports it.
With cross margin, positions share collateral from the account. If one position loses value, it may use collateral that could otherwise support other positions.
That changes the shape of risk:
- isolated margin contains risk to one position
- cross margin connects the risk of open positions through shared collateral
Leverage is the multiple between position value and posted margin. Position value is the notional size of the trade, and posted margin is the collateral locked to support it.
Initial margin is the amount locked when the position opens. In this article’s setup, initial margin equals position value divided by leverage.
A quick mental check helps:
- at 2x leverage, a 50% adverse move uses the initial margin
- at 10x leverage, a 10% adverse move does
- at 100x leverage, a 1% adverse move does
This does not tell you the exact liquidation point, but it shows why margin mode matters more as leverage rises. Small price moves can put a highly leveraged position under stress quickly.
The choice is most important when more than one position is open at once. Separate collateral makes each trade easier to size and monitor on its own. Shared collateral can keep positions alive longer, but it can also let losses spread across the account.
ZK Futures supports isolated margin only, so each position uses its own locked play-money margin.
What liquidation means in each mode
Liquidation is the forced closure of a position when its remaining equity falls to the exchange’s maintenance requirement.
In position terms, equity is margin plus unrealized profit and loss. Unrealized PnL is the profit or loss on an open position based on the current mark price rather than a closed trade. Maintenance margin is the minimum collateral a position must keep to remain open.
That makes the liquidation check straightforward in isolated margin. Each position is measured against its own equity only. If that position’s margin plus unrealized PnL falls to the maintenance level, that position is liquidated. In the demo facts here, the maintenance margin rate is 0.5% of the position value at the mark price.
Cross margin works differently at a high level because collateral is shared across positions. A losing trade can draw on the broader account balance instead of relying only on the collateral first assigned to that one position. That can delay liquidation on a single position compared with isolated margin, but it also means continued losses can put more of the account at risk because the shared collateral pool is absorbing the stress.
A useful point for new derivatives traders is that liquidation does not mean a position waits until margin reaches zero. It can happen earlier. The reason is that some collateral must still remain to meet the maintenance margin requirement. Once equity falls to that threshold, the position no longer has enough support to stay open under the exchange’s rules.
So the core difference is where the loss is allowed to reach before liquidation happens: one position’s own margin in isolated mode, or shared account collateral in cross mode.
A concrete isolated-margin example
Take a linear USDT-margined perpetual with a position value of 1,000 USDT at 10x leverage. The initial margin is position value divided by leverage, so 100 USDT is locked to open the trade.
In isolated margin, only that 100 USDT stands behind this position. Other collateral in the account is not assigned to it automatically, so the position cannot keep pulling from the rest of the account if it moves against the trader.
Now add an entry price. Suppose the trader buys or sells at 100 USDT.
For a long position, the liquidation price in this demo is:
- liquidation price = entry price × (1 - 1/leverage) / (1 - 0.005)
Plugging in 100 USDT and 10x gives about 90.45 USDT.
For a short position, the liquidation price in this demo is:
- liquidation price = entry price × (1 + 1/leverage) / (1 + 0.005)
Using the same 100 USDT entry and 10x gives about 109.45 USDT.
The main idea is simple. Higher leverage moves the liquidation price closer to the entry price because less margin stands behind the same position value. Lower leverage places the liquidation point farther away because more collateral is supporting the trade.
Mark price is the reference price used to value the position for PnL and liquidation checks. On the demo, mark prices follow public spot market data, with a simulated walk if that feed is unavailable.
That distinction matters because liquidation is based on the mark price, not just the last traded price shown in the order book.
In this setup, the maintenance margin requirement is still part of the calculation, which is why liquidation comes before the position’s equity falls all the way to zero. Under isolated margin in the demo, the loss is capped at the position’s margin. In this example, that means the most the position can consume is the 100 USDT assigned to it, not the rest of the account.
Funding, order books, and why margin mode still matters
Funding is the periodic cash flow between longs and shorts on a perpetual futures market. A long position gains when the market rises and loses when it falls; a short position does the opposite. The funding rate sets who pays at each settlement: positive means longs pay shorts, negative means shorts pay longs.
The payment is based on position value, not on the margin posted to open the trade. A simple example: a funding rate of 0.01% on a position worth 10,000 USDT is 1 USDT per settlement. On ZK Futures, funding is settled every 30 seconds in play money, with a cap of 0.1% of the position value per settlement.
That matters because funding can steadily add to or subtract from position equity between entry and exit. Even if price barely moves, repeated debits can tighten the room between current equity and liquidation. Margin mode decides where that pressure lands:
- in isolated margin, it affects only that position’s locked collateral
- in cross margin, it affects shared account collateral
Order-book mechanics are a separate layer. An order book is the list of buy and sell orders waiting at different prices. Here, each market matches by price-time priority: best price first, then first in, first out among orders at the same price. The book shows ten price levels on each side.
So even with orderly matching, margin mode still shapes what happens after a trade is open, especially when funding keeps changing the position’s equity.
How to choose a margin mode based on risk control
Start with a practical question: when a trade goes wrong, should that loss stop at one position or be able to draw on the rest of the account?
That is the real margin-mode decision.
Isolated margin fits traders who want to predefine the maximum collateral one position can put at risk. It is easier to budget trade by trade because each position stands on its own margin allocation.
Cross margin fits traders who prefer account-level collateral management. That can keep a position open longer, but it also makes risk less separate: one weak position can reduce the buffer protecting other open positions.
A simple way to choose is to think about account structure:
- one position at a time and strict loss boundaries often point to isolated margin
- several positions that are meant to share account collateral point to cross margin
- if you cannot quickly explain which positions are supporting which risks, the setup may be too complex
For traders coming from spot, the key adjustment is that derivatives risk is tied not just to direction but to collateral design. Margin mode is part of the trade thesis because it changes how losses travel.
If you want to study that behavior without real funds, ZK Futures offers isolated margin only, with play-money balances and leverage from 1x to 100x.
Common questions about isolated and cross margin
Does margin mode change the size of a position?
No. Margin mode changes which collateral supports the position after it opens, not the market exposure itself. A position’s exposure comes from its position value and leverage. In a linear USDT-margined perpetual, initial margin equals position value divided by leverage.
Is cross margin better for hedged positions?
It can be easier to manage hedged positions with shared collateral because gains on one position may offset losses on another at the account level. But that setup also ties the positions together. If the hedge is imperfect, losses can still spread through the same collateral pool.
What should a new derivatives trader watch first?
Three things matter right away:
- leverage, because it sets how much margin backs the position
- liquidation rules, because they define when the position can be closed
- funding, because repeated payments change equity while the trade is open
That is why many newer traders prefer isolated margin first: the risk is easier to trace position by position.
How can you practice the difference without real collateral?
Use a testnet demo with play money and watch how equity changes as the mark price and funding move. ZK Futures supports isolated margin only, so each position has its own locked play-money margin, and a new account starts with 1,205.50 test USDT. That makes it a straightforward place to learn how leverage, liquidation, and funding interact before using real collateral elsewhere.
Practice the mechanics before risking real collateral
Margin mode is easiest to understand by watching the account state change after entry, not by reading definitions once.
In a testnet demo, you can observe:
- locked margin on each position
- unrealized PnL as the mark price moves
- the liquidation price move closer as leverage rises
- funding entries appear over time
ZK Futures is a testnet demo of a hybrid crypto exchange for perpetual futures. Every balance is play money, and a new account starts with 1,205.50 test USDT with no monetary value.
Treat practice as rehearsal for risk control, not as a promise of results.