Futures trading seems a bit complex and risky to most newbies even some OGs.

But the truth is many new traders blow accounts not because of bad trades.

But because they don’t understand leverage and Margin Modes.

Let’s break them down in the simplest way possible.

What is Leverage?

Leverage in simple terms lets you trade with more money than you actually have.

If you use 10x leverage with $100,

You’re trading like you have $1,000.

This means 

Small wins = Big profits

Small losses = Can wipe you out

When you enter a trade with $100 and the pair you are trading moves by 5% you make $5.

When Someone else enters same yradewith $1,000 he makes $50.

Now with Leverage when you enter Same trade on Futures With 10x leverage and $100, when the market moves by 5% your Profit is Multiplied by 10.

Which is $5 x 10 = $50.

You see that your profit with someone with $1,000 is similar.

Same thing applies if the Trade goes the opposite direction in loss.

It’s powerful and risky at the same time.

It's responsible for sending alot of persons back to the village.

What is Margin?

Margin is the amount of money you actually put in to open a trade.

That’s your real money at stake.

There are Two Types of Margin Modes and This is where most people get confused.

Let’s simplify it.

Isolated Margin

Here, only the amount you assign to that trade is at risk.

If it goes wrong, you only lose that specific amount.

For example, if your Futures trading Account has $100, and you open a Position with $10 using isolated margin this is what happens.

When your trade goes against you, you will only lose that $10 you used In that position.

When your position hits -100% that Position is Liquidated.

What this means is your $10 has been wiped out.

Except if before it Hits -100 you Opened another position on same pair and same direction.

 Then your loss reduces let's say from -95% to -70% depending on how much you used in opening the new position.

Cross Margin

All your available funds in the Futures wallet are at risk.

If one trade is losing, your wallet balance can be used to keep it alive.

But if it fails, you can lose everything in your futures balance.

For example, if your Futures trading Account has $100, and you open a Position with $10 using cross margin this is what happens.

When your position hits -100% that Position it doesn't get Liquidated as long as the remaining $90 is still in your account.

It will keep going in loss up -800% until the $90 gets exhausted then you will finally be liquidated.

You didn't just lose $10 you used for that trade but your entire account.

The beauty of cross margin is it helps you hold a position for long even if prices goes beyond -100% as long as you still have balance left to keep the trade on.

That balance left is called maintenance margin.

So how does Leverage relate to Margin Modes?

In Isolated, you can use high leverage to quickly scalp a position but you only lose what you put in.

In Cross, your leverage might be lower(Holding positions for longer periods it's best you use low leverage) but the exchange can tap into your whole futures wallet to save the trade. potentially risking your entire balance.

The more leverage you use,

The faster you can win or lose.

The margin mode decides how much you can lose.

Learn to use both properly and your account will survive longer than most clueless traders.