Isolated margin is a way of funding a leveraged trade in which only the collateral assigned to that specific position can be used to cover its losses. If the market moves against the position far enough, the position is liquidated and the trader loses that assigned amount, but the rest of the account balance is left untouched. It is offered by most crypto derivatives exchanges and some traditional brokers alongside the alternative mode, cross margin.
The setting matters mainly in margin trading and in perpetual futures, where traders can use high leverage. Isolated margin is a risk-control tool: it caps the loss on one idea, at the cost of a liquidation price that is closer to the entry price than it would be under cross margin with a large account behind the trade.
Isolated margin in plain terms
Imagine a gambler who goes to a casino with a wallet full of money, but puts a fixed amount into a separate envelope for one game. Whatever happens at that table, they can only lose what is in the envelope. If the envelope empties, the game is over for them, but the wallet stays safe.
Isolated margin is that envelope. A trader sets aside, say, 100 dollars for one leveraged bet. If the bet goes badly enough, the exchange closes it and keeps the 100 dollars. The trader's other funds and other positions are not touched. The downside is that a small envelope runs out quickly, so the trade can be closed after a fairly modest price move.
How isolated margin works
When a trader opens an isolated position, they choose how much collateral to commit and how much leverage to use. The committed amount is the position's initial margin. The exchange also sets a maintenance margin, the minimum equity the position must keep. If unrealised losses push the position's equity below that level, the exchange triggers a forced liquidation. Traders can usually add margin to an isolated position to push its liquidation price further away, or remove excess margin when the trade is in profit.
For a simple long position on a linear contract, ignoring fees and funding, the liquidation price is approximately:
- is the price at which the position is liquidated.
- is the entry price.
- is the leverage used.
- is the maintenance margin rate, written as a decimal.
For example, a trader goes long bitcoin at 60,000 with 10x leverage, and the exchange's maintenance margin rate is 0.5%. The liquidation price is 60,000 × (1 − 0.1 + 0.005) = 60,000 × 0.905 = 54,300. A fall of about 9.5% wipes out the isolated margin. For a short position the signs reverse and the liquidation price sits above the entry. Each exchange uses its own formula, tiers and fees, so the platform's calculator is the authority.
The formula shows why leverage and liquidation distance are tied together. At 2x leverage the same position could fall by roughly half before liquidation; at 50x a move of about 1.5% is enough. Adding collateral to an isolated position lowers its effective leverage and moves the liquidation price away, which is why exchanges offer an "add margin" button on open positions.
Isolated margin compared with cross margin
| Feature | Isolated margin | Cross margin |
|---|---|---|
| Collateral at risk | Only the margin assigned to the position | The whole available account balance |
| Liquidation distance | Closer, set by the assigned margin | Further, because the whole balance supports the position |
| Best suited to | Single speculative trades with a fixed maximum loss | Hedged or offsetting positions that support each other |
| Main danger | Frequent liquidations at high leverage | One bad trade can drain the entire account |
Uses and limitations
- Capping losses. Traders who want to know their worst case before entering use isolated mode, often together with a stop-loss order placed before the liquidation price.
- Separating strategies. Keeping a high-risk position isolated stops it from endangering longer-term holdings in the same account.
- Not a guarantee. In fast markets a position can be liquidated below the expected price, and some exchanges charge liquidation fees or use insurance funds and auto-deleveraging rules that change the outcome.
- Costs keep running. Funding payments and trading fees reduce the isolated margin over time, nudging the liquidation price closer.
Isolated margin does not make leveraged trading safe. It limits how much of an account a single trade can consume, but high leverage still means a small move can erase the committed collateral. Alternatives that avoid liquidation altogether, at other costs, include leveraged tokens and options. Margin products are restricted or banned for retail customers in several jurisdictions, and general risk management practice is to size positions so that a liquidation would be survivable.