What is Isolated Margin?
Isolated margin is a margin mode where the risk for each position is limited to the specific amount of margin allocated to that position. If the position is liquidated, only the isolated margin is lost, and other account funds remain protected. This contrasts with cross margin, where all account funds are shared across positions.
How Isolated Margin Works
When you open an isolated margin position, you specify exactly how much margin to allocate. This margin serves as the maximum loss for that position. Even if you have more funds in your account, they cannot be used to prevent liquidation of the isolated position.
For example, if you have $10,000 in your account and open an isolated margin long with $2,000, only that $2,000 is at risk. If the position is liquidated, you lose the $2,000, but your remaining $8,000 is untouched.
Benefits of Isolated Margin
Risk containment is the primary benefit. Isolated margin limits worst-case losses to a predetermined amount. This makes it easier to size positions according to risk tolerance and prevents a single bad trade from devastating your entire account.
Isolated margin also simplifies risk management. Each position's maximum loss is known upfront. You can calculate position sizes based on how much you are willing to lose on each trade.
Drawbacks of Isolated Margin
The main drawback is higher liquidation risk compared to cross margin. Because only allocated funds can absorb losses, positions get liquidated at less extreme prices than they would with cross margin. You cannot rely on other account funds to buffer against temporary adverse moves.
Additionally, managing multiple isolated positions requires allocating margin separately to each, which can be less capital efficient than cross margin.
Isolated vs. Cross Margin Choice
Choose isolated margin when you want to strictly limit downside on specific trades, are trading higher risk positions where total loss is acceptable, prefer clear risk boundaries over capital efficiency, or are new to leveraged trading and want built-in protection.
Choose cross margin when capital efficiency is more important, you are confident in your positions and want maximum buffer against liquidation, or you are running hedged or diversified position sets.