Isolated margin is a trading modality that allows you to assign a specific amount of your capital as collateral for a position in futures markets or margin trading.
Unlike cross margin, isolated margin limits the risk only to the amount assigned for that position, protecting the rest of your balance in case of losses.
Let me explain briefly:
How does isolated margin work?
Collateral limited to one position:
When you open a trade with isolated margin, you decide how much of your capital you want to assign as collateral for that position.
If the position incurs losses and the assigned margin is exhausted, the position is automatically liquidated, but the rest of your balance remains intact.
Independent management:
Each position has its own assigned margin. If you have multiple open trades, the losses of one do not affect the others.
Total control:
You can adjust the margin assigned to a position at any time, increasing or decreasing the amount as needed.
Advantages of isolated margin
Risk management:
Isolated margin ensures that you only lose the specific amount you assigned to a position, protecting the rest of your account.
Independent position management:
You can manage each trade independently, without the losses of one affecting the performance of others.
Simplicity for beginners:
It is a safer option for novice traders, as it limits the impact of mistakes or market fluctuations.
Disadvantages of isolated margin
Higher probability of liquidation:
Since the assigned margin is limited, if the losses reach that amount, the position will be liquidated.
In comparison, cross margin uses your entire account balance to reduce the risk of immediate liquidation.
Requires manual adjustments:
If you want to avoid liquidation, you will need to manually add more margin.
Key differences from cross margin
In isolated margin:
You only lose what you assigned to that position.
Each position has its own margin, managed independently.
In cross margin:
All positions share the same collateral balance.
If one position has significant losses, it can consume all your available balance.
Practical example
Isolated margin:
You have 1,000 USDT in your account and decide to open a futures trade assigning only 100 USDT as isolated margin.
If the position loses 100 USDT, it is liquidated, but the rest of your account (900 USDT) remains safe.
Cross margin:
If you open the same position but with cross margin, the 1,000 USDT in your account would be available as collateral.
If the losses exceed 100 USDT, they can consume the rest of your balance.
When to use isolated margin?
Ideal for beginners:
It is perfect for those who are learning and want to limit their potential losses.
For specific trades:
Useful if you want to make a high-risk trade but prefer to limit its impact on your overall account.
Conclusion
Isolated margin is a valuable tool for managing risks and protecting your capital in cryptocurrency trading.
It is a much safer option than cross margin for those who want to maintain control over potential losses.
Be clear that it will require constant adjustments if market conditions change drastically.
If you are starting in leveraged trading, isolated margin is the most recommended option.
