What is isolated margin in crypto trading & how does it work?
Isolated margin is a type of margin trading where a trader's borrowed funds and collateral are confined to a single trading position. This means that if the position gets liquidated, only the isolated margin balance is lost, while the rest of the trader's funds remain untouched.
It is commonly used on crypto exchanges like Binance, Bybit, and KuCoin to limit risk in leveraged trading.
How isolated margin works
- A trader opens a position using borrowed funds with a specific margin amount.
- The collateral is kept separate from other funds in their account.
- If the trade moves against them, the position is liquidated once the margin is depleted.
- Other funds remain safe, unlike cross margin, where all account funds can be at risk.
For example:
- A trader uses $100 in isolated margin with 10x leverage, opening a $1,000 position.
- If the trade goes bad, liquidation occurs when losses reach $100, but their remaining funds are not affected.
Isolated margin vs. Cross margin
| Feature | Isolated margin | Cross margin |
|---|---|---|
| Risk Control | Limited to one position | Shared across all positions |
| Liquidation Risk | Only affects the specific trade | Can wipe out entire balance |
| Flexibility | Higher control over risk per trade | Can help prevent liquidation (if enough balance) |
| Best For | Traders who want to limit risk on individual trades | Experienced traders managing multiple positions |
Cross margin uses all available balance to support a trade, while isolated margin contains the risk to just one position.
Risks of isolated margin
- More manual management – Requires adding funds manually to prevent liquidation.
- Can be liquidated quickly – Since margin is limited, large price swings can trigger liquidation faster.
- Not ideal for long-term holding – Requires active monitoring, unlike cross margin, which adjusts automatically.