Isolated Margin

CroW...PVMn

16 Jan 2024

Isolated Margin

“isolated margin” refers to the margin balance allocated to an individual position. Isolated margin allows traders to manage the risk of their positions by limiting the amount of margin allocated to each. The margin balance allocated for each position can be adjusted separately.

If a trader’s position is liquidated in isolated margin mode instead of the entire margin balance, only the isolated margin balance is liquidated.

What is Margin?

Margin, which means “share”, is used in the sense of the share allocated against the possibility of loss in commercial transactions.

Isolated Margin Example

For example, let’s say an angel enters a long position in BTC worth 1,000 USD with 10x leverage. In this case, a margin balance of 2,000 USD will be available. Melek is willing to risk only a part of it for an individual position so as not to lose all of her balance. Therefore, if he sets the isolated margin as 100 USD for his position, he will not lose more than 100 USD when his position is liquidated.

The amount of isolated margin can be adjusted for open positions. If a position in this mode is close to being liquidated, liquidation can be avoided by allocating additional margin from the entire budget to only a specific position.

It is not possible to change the respective margin mode after a position has been opened. Therefore, it is very important to check the margin mode settings before entering a position.

Crossover and Isolated Margin Difference

Another widely used margin mode on trading platforms is the cross margin. In this mode, the entire margin balance is shared between open positions to avoid liquidation. If the cross margin is enabled, the trader risks losing the entire margin balance along with open positions in the event of a liquidation. Any PnL (profit and loss) executed from another position can assist a losing position that is close to being liquidated.

Cross margin is the default setting on most platforms as it is a simple approach better suited for inexperienced traders. However, an isolated margin may be more useful for more speculative positions that require strict downside constraints.