Isolated Margin

Understanding Isolated Margin

In its simplest form, Isolated Margin allows individuals trading in cryptocurrencies to completely isolate the margin designated for a specific position. This mechanism ensures that only the margin allocated for a particular trade position is at risk rather than the entire balance in your trading account.

The Significance of Isolated Margin

With the highly volatile nature of cryptocurrencies, trading can often lead to unexpected losses, if one position goes bad. Isolated margin is thus a crucial safety instrument, which prevents a trader from losing more than they initially invested in a trade. Essentially, it protects your other trades and the remaining balance in your trading account.

Isolated Margin versus Cross Margin

• Isolated Margin: This risk management tactic allows traders to limit their loss to the amount available in the margin for a specific position. If this position sustains severe losses and the isolated margin is depleted, the position will be liquidated automatically, but the remaining balance in your trading account stays unharmed.
• Cross Margin: This is another type of margin trading, where all available funds in your account balance are used to back all open positions. While cross margin allows for more efficient use of your balance, it comes with the increased risk of losing your entire account balance if the market goes against your positions.

How to Use Isolated Margin?

Using isolated margin in cryptocurrency trading involves a few steps. First off, the trader chooses the cryptocurrency pair they want to trade. Once the choice is made, they can set the desired leverage (borrowed funds for trading). The next step is to set the isolated margin for that position. After placing the trade, the trader can also adjust the isolated margin to manage their risks better.