Isolated Margin

Isolated margin refers to a margin trading method where traders can allocate a specific amount of funds to a particular trading position. This means that the margin for each position is independent and isolated from the trader's total account balance or other positions. In isolated margin trading, the potential loss is limited to the funds allocated to that specific position, protecting the trader from losing more than they have committed.

For example, let's say a trader has $10,000 in their account and wants to trade Bitcoin with isolated margin. They allocate $2,000 for a long position on Bitcoin. With isolated margin, only the $2,000 allocated to that specific position is at risk. Even if the price of Bitcoin drops significantly and the position is liquidated, the trader can only lose the $2,000 allocated to that position, not the entire $10,000 account balance.

Case: Suppose a trader decides to use isolated margin trading on an exchange. They allocate $3,000 for a short position on Ethereum. If the price of Ethereum increases unexpectedly, causing the position to incur losses and get liquidated, the trader's potential loss is limited to the $3,000 allocated to that specific short position. Their remaining account balance is unaffected, providing risk mitigation and allowing them to manage their overall portfolio more effectively.