What is Isolated Margin?
Let's find out Isolated Margin meaning, definition in crypto, what is Isolated Margin, and all other detailed facts.
Isolated Margin provides traders with the possibility of managing their risk in separate positions. This is because an Isolated Margin limits the amount of margin available for each position. Though every position's margin balance can be modified individually.
If a trader uses an Isolated Margin mode, and for some reason, his position is liquidated, he will only lose the Isolated Margin balance, not the whole balance.
To illustrate, imagine that you want to open a long position in Ethereum that is worth $10000 and has a 10x leverage. In this case, you have a margin balance of $20000 but you don’t want to risk the whole amount for a single position because it would probably be careless.
Thus, you can set the Isolated Margin for the position to, let’s say, $1000. By doing that, you won’t lose more than $1000 if your position is liquidated.
The amount of margin assigned to a position can be adjusted once it has been isolated. In Isolated Margin mode, an additional margin can be added to the position if it's about to be liquidated. This would prevent liquidation.
Cross Margin is another popular margin mode. The full margin balance is divided across open positions in this mode. The division is done to avoid liquidation. When liquidation occurs, the trader could lose his/her entire margin balance as well as any open positions if Cross Margin is activated. Though a losing position that is close to liquidation can be assisted by realized Profit and Loss from another position.
Cross Margin is the default choice on most trading platforms. This is because it’s the most direct approach for new traders. Isolated Margin, on the other hand, can be advantageous for more risky positions with strict downside limits.