Isolated Margin

In simple terms

Isolated margin is like keeping your trading money in a separate wallet so you can only lose what you put in. If that trade goes bad, it won't affect your other funds.

Definition

Only allocated margin is at risk for a position.

In depth

Isolated margin is a risk management mechanism where a trader allocates a specific amount of collateral to a single position, and only that allocated margin is liquidated if the position moves against them. Unlike cross margin, where all account collateral backs multiple positions, isolated margin compartmentalizes risk by limiting liquidation exposure to the designated margin for that trade. This allows traders to precisely control position-level risk parameters and prevent cascade liquidations across their entire portfolio.

How does Isolated Margin work?

Isolated margin assigns a fixed amount of collateral to one specific position and walls it off from the rest of the account. The exchange calculates that position's equity from its assigned margin plus its own unrealized profit or loss, then compares the result against that position's maintenance requirement. When the assigned margin is exhausted, only that position is liquidated and the remaining account balance is untouched. Traders can normally add margin to an isolated position manually, which lowers its effective leverage and moves the liquidation price further away.

An example

A trader with $5,000 in the account assigns $500 to an isolated long at 10x, giving $5,000 of notional exposure, in illustrative figures. If the price falls far enough to exhaust that $500, the position is liquidated and the loss is capped near $500, leaving the other $4,500 available. Adding $250 of margin beforehand would have pushed the liquidation price further from the entry.

Figures are illustrative only.

What beginners get wrong

• Isolated margin caps the loss on a position but does nothing to slow how quickly that position can be liquidated.
• Because the assigned buffer is small, isolated positions at high leverage are often closed out by ordinary volatility rather than large moves.
• Repeatedly topping up a losing isolated position quietly converts a capped loss into a much larger one.
• Switching an existing position between isolated and cross mode changes its liquidation price, which catches traders out mid-trade.

Related terms

• Cross Margin
• Margin
• Liquidation
• Leverage
• Risk Tolerance

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