Isolated margin is a trading mode where a trader explicitly allocates a specific amount of collateral to a single position — and only that collateral is at risk — so if the position is liquidated, the maximum loss is capped at the amount allocated to it, leaving all other funds in the account completely unaffected. Isolated margin is the preferred risk management mode for high-leverage trades where a trader wants to define their maximum loss upfront. The tradeoff is capital efficiency: funds allocated to an isolated margin position are locked and cannot support other positions. If the position approaches liquidation, the trader must manually add more margin or let it be liquidated — the exchange won’t automatically use the rest of the account to support it.
How Isolated Margin Works
Fixed Collateral Assignment
In isolated margin mode, the trader explicitly chooses how much collateral to assign to each position at open:
“`
Account Balance: 10,000 USDC
Position A (Isolated): Long ETH — allocated 500 USDC
└── 10x leverage → $5,000 notional
└── Max loss: 500 USDC
└── If liquidated: 500 USDC lost; 9,500 USDC in account untouched
Position B (Isolated): Short BTC — allocated 1,000 USDC
└── 5x leverage → $5,000 notional
└── Max loss: 1,000 USDC
Position C (Isolated): Long SOL — allocated 200 USDC
└── Max loss: 200 USDC
“`
Each position is a sealed compartment. A total blowup on Position A loses 500 USDC, nothing more.
Liquidation Price Calculation
In isolated margin, the liquidation price is determined at position open based on the allocated margin:
“`
Long ETH at $3,000
Allocated margin: 500 USDC
Leverage: 10x
Notional: 5,000 USDC
Maintenance margin rate: 0.5% = $25
Liquidation when margin falls to $25:
Losses allowed: 500 – 25 = 475 USDC
Price drop allowed: 475 / (5,000/3,000) = $285/ETH
Liquidation price: $3,000 – $285 = $2,715
“`
This liquidation price is fixed at the time the position is opened — it only changes if the trader manually adds or removes margin from the isolated position.
Adjusting Isolated Margin
Traders can modify allocated margin mid-trade:
Adding margin: Transfers USDC from the account to the isolated position → lowers the liquidation price → reduces liquidation risk. Used when a trade moves against the trader but they still believe in the thesis.
Removing margin: Transfers USDC from the position back to the account → raises the liquidation price → increases liquidation risk. Used to free up capital, but dangerous in volatile markets.
Cross-Margin vs. Isolated Margin
| Feature | Cross-Margin | Isolated Margin |
|---|---|---|
| Collateral scope | Entire account | Specific amount per position |
| Max loss per position | Entire account | Only the allocated margin |
| Liquidation impact | Can cascade across positions | Contained; other positions unaffected |
| Capital efficiency | High | Lower — capital is siloed |
| Complexity | Lower — set and forget | Higher — must manage each position |
| Best for | Multiple hedged positions | High-leverage single bets |
Use Cases for Isolated Margin
Degenerate High-Leverage Bets
Position Sizing with Defined Risk
Simultaneous Directional Bets
Isolated Margin on Decentralized Perpetuals
GMX V1
Binance, Bybit (for context)
Hyperliquid
The Liquidation Cascade Difference
Isolated margin’s key safety property:
In cross-margin: A liquidation event on one position drains the shared margin → may cascade to trigger liquidations on other positions → account can go to zero even if most positions are profitable.
In isolated margin: A liquidation on Position A takes exactly the allocated margin (e.g., 500 USDC). Position B and C’s collateral is completely unaffected. No cascade.
This is why isolated margin is often described as “downside insurance” — the maximum downside per trade is knowable and fixed.