Isolated Margin is a risk management mode that allows you to limit your potential losses to a specific amount on a particular position.
When you use Isolated Margin, you allocate a set amount of your balance to a position. This allocated amount acts as the margin for that specific position, and it is kept separate from your other positions and overall available balance.
How Isolated Margin Works
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Margin Allocation: You choose the leverage level for a trade or position, which in turn determines the Initial Margin required
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Loss Limitation: If the trade moves against you, your losses are limited to the Initial Margin you've assigned to that particular position. Your other positions and remaining account balance are protected
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Liquidation: If the losses on a trade exceed your maintenance margin, that position will be liquidated. Your Available Balance will not be used to add margin
Isolated Margin vs. Cross Margin
There are two margin modes under Single Asset Margining: Isolated Margin and Cross Margin:
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Cross Margin: Uses your entire account balance as margin for all open positions. This can help prevent liquidation but also means that losses in one position can affect your entire account
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Isolated Margin: Restricts the margin to a specific position, limiting potential losses on that trade
Benefits of Isolated Margin
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Controlled Risk: Provides greater control over the risk associated with a single position, allowing you to define the maximum potential loss.
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Limited Liability: Caps your potential losses to the initial margin set for that position.
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Flexibility for Speculative Trading: Enables you to take on higher-risk positions for speculative trades without risking your entire account balance
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Adjustable Leverage: Allows you to dynamically adjust your leverage for a position
When to Use Isolated Margin
Isolated Margin is often preferred for:
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Speculative trades: When you want to take a calculated risk on a specific trade without exposing your entire account balance
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Short-term trading: When you want to quickly enter and exit a position with a defined risk.
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Testing new strategies: When you want to experiment with a new trading strategy without risking a significant portion of your capital
Liquidation Risk with High Leverage
Highly leveraged positions, especially in volatile markets, are more susceptible to liquidation. For example, a 50x leveraged position can be liquidated by a relatively small (2%) adverse price movement. To minimize this risk, especially in volatile markets, avoid using high leverage.