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This question about leverage mentions "Isolated Margin".

A bit of googling leads me to think it is some crypto idea. The explanations I can find just states that the risk can be limited to some threshold you set - independent of how much you leverage. As mentioned in several answers to the linked questions this is not possible in "classical" trading. I am also having a hard time understanding how it should be possible. At first I thought it was a scam description, but since several pages describes it, some thought must have been put into it - I just cannot figure out what.

Therefore - how is this supposed to be achieved with crypto? Preferably, the answer would not involve a lot of crypto techno-babble, which is the reason I am asking here instead of on one of the crypto sub-sites here.

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    I suspect it involves brokers backing the currency and essentially being a part to the trade and not just broker. Which.... is a scam...
    – littleadv
    Commented Feb 13 at 8:48

2 Answers 2

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I'm the person who asked the original question about leverage and mentioned isolated margin trading. I did some research and I will now try to summarise what I found.


How Exchanges Try to Mitigate the Problem

  • Liquidation Engines: Most reputable exchanges have sophisticated systems that try to execute rapid-fire liquidations the moment your account hits the liquidation price. They use techniques that break up your position to find the maximum buyers quickly.
  • Insurance Funds: Some exchanges maintain an insurance fund to cover scenarios where a position experiences losses greater than the account's margin. These funds are usually built up using a small portion of fees from margin traders.
  • Risk Management Mechanisms: Exchanges monitor market liquidity and adjust liquidation procedures during wild volatility. Sometimes they temporarily suspend margin trading in highly illiquid coins.

My Experience with Isolated Margin Trading

I experimented with 100x Bitcoin trades on CoinEx, a Hong Kong-based exchange known for offering a wide range of altcoins and margin trading options. It was an interesting experience – sometimes I doubled my position, and sometimes I lost it all. I DO NOT WANT TO ADVERTISE MARGIN TRADING IN THIS SECTION!

Crypto position closed with 100%+ profit

  • Type: Long Bitcoin (BTC) with 100x Leverage
  • Position size: 0.106 BTC
  • Average entry price: 44893.88 USDT
  • Exit price: 45466.91 USDT
  • Profit and loss (PNL): 117.57% or 55.95205813 USDT
  • Position fees: 4.78912187 USDT

Crypto position was liquidated with 102.5% losses

  • Type: Long Bitcoin (BTC) with 100x Leverage
  • Position size: 0.025 BTC
  • Average entry price: 22034.30 USDT
  • Exit price: 21702.12 USDT
  • Profit and loss (PNL): -102.5% or -11.29257875 USDT (-102.5% equals everything on my margin account)
  • Position fees: 0.27542875 USDT

I tried to break it down as well as I could with some of my real-world examples. I haven't verified my identity on this exchange, so I highly doubt that I am even able to go into debt.


Disclaimer: Isolated margin trading involves substantial risk. It amplifies both potential profits and losses. You could lose your entire margin for a specific position. Before participating, carefully assess your financial situation and risk tolerance.

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    You are explaining how it is advertised as a service - this does not explain how it could possibly operate in a fair market. The presence of a theoretical, undefined 'insurance fund' looks like handwaving to avoid someone realizing that this financial product could be pure disaster for the broker [who theoretically is on the hook for downside], unless they had their thumb on the scale in some way. Commented Feb 16 at 17:01
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This is a term typically used on crypto exchanges that allow leverage trading (margin or futures). It's not related to crypto inherently, just a way that some exchanges offer margin.

See "Cross vs Isolated Margin" here for a good description: https://support.kraken.com/hc/en-us/articles/4844463246100-Margining-Liquidations-Multi-Collateral

Isolated margin allows a trader to be in full control on how much leverage they are taking on a position and how much funds they want to have at risk at any given time. The Isolated Margin indicates the Initial Margin the system sets aside for the position opened for the specific contract, which is the Margin allocated to a position and the only funds at risk. Initial Margin set aside for an Isolated position is excluded from Cross Risk margin calculations so Cross Liquidations do not impact Isolated Margin set aside, unless there is an account-wide liquidation then the isolated position will also get liquidated.

Note: Funding rate payments in isolated positions are deducted from the general wallet balance rather than being included in the PnL which can cause liquidation in isolation.

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    Can you add an explanation of who absorbs the losses in the event that a trader's leveraged trade generates losses that exceed the "isolated margin"? Right now the description sounds too good to be true (who wouldn't want unlimited upside with a fixed limit on downside)? Also, you say that this concept is not inherently related to crypto. Are there examples of conventional (i.e., non-crypto) brokerages offering "isolated margin"? It seems many people around here have never heard the term; are there other synonymous terms that might be more widely known?
    – Nobody
    Commented Feb 14 at 16:30
  • My comment that "it is not inherently related to crypto" isn't intended to suggest that it exists on non-crypto exchanges - I'm not aware that it does. However, it's a concept found on crypto exchanges, it is not inherent to cryptocurrencies in any way.
    – Riot
    Commented Feb 16 at 16:47

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