Isolated margin is a trading method that allows you to open leveraged positions using a segregated portion of your funds. This means your risk is limited to the specific margin allocated to that trade. In isolated margin mode, traders can use either the base currency or the quote currency as collateral, providing flexibility depending on market view and strategy.
Core Components of an Isolated Margin Position
Understanding the key fields of a margin position is crucial for effective management.
Position Asset (pos)
This is the total quantity of the asset purchased, after fees have been deducted. In the older isolated margin mode, if a user has not upgraded, the position asset value includes both the purchased amount and the initial margin.
Liability (liab)
This represents the total borrowed amount, which includes both the principal loan and the accrued interest.
Margin
This is the collateral amount specifically allocated to this isolated position.
Average Entry Price (avgPx)
This is the volume-weighted average price at which the position was opened. It is calculated as: (Original Position Quantity Original Average Price + New Quantity Fill Price) / (Total Position Quantity + New Quantity).
Estimated Liquidation Price (liqPx)
This is the projected price level at which the position will be liquidated if the market moves against you. The calculation differs based on the mode and the type of trade.
New Isolated Margin Mode:
- Long with Base Currency as Margin:
[ |Liability + Interest| * (1 + MMR%) * (1 + Fee Rate) ] / (Position Asset + Margin) - Long with Quote Currency as Margin:
[ |Liability + Interest| * (1 + MMR%) * (1 + Fee Rate) - Margin ] / Position Asset - Short with Base Currency as Margin:
Position Asset / [ |Liability + Interest| * (1 + MMR%) * (1 + Fee Rate) - Margin ] - Short with Quote Currency as Margin:
(Position Asset + Margin) / [ |Liability + Interest| * (1 + MMR%) * (1 + Fee Rate) ]
Older Isolated Margin Mode:
The formulas are simplified, using only the position asset in the denominator for long and short positions, respectively.
Unrealized P&L (upl)
This is the current profit or loss on the open position, calculated against the current mark price.
New Isolated Margin Mode:
- Long (Base Margin):
Position Asset - |Liability + Interest| / Mark Price - Long (Quote Margin):
Position Asset * Mark Price - |Liability + Interest| - Short (Base Margin):
Position Asset / Mark Price - |Liability + Interest| - Short (Quote Margin):
Position Asset - |Liability + Interest| * Mark Price
Older Isolated Margin Mode:
The calculation also subtracts the initial margin from the result.
Unrealized P&L Ratio (uplRatio)
This is the unrealized profit or loss expressed as a percentage of the initial margin used to open the position: Unrealized P&L / Initial Margin.
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Trading Rules: Opening and Closing
Opening a Position
When you open a position, assets, liabilities, and margin are all recorded. The display of these fields varies depending on whether you are using the new or old isolated margin mode.
Example: Opening a position with BTC at $100,000 and 10x leverage.
| Trade Type | Base Currency as Margin | Quote Currency as Margin |
|---|---|---|
| Long 1 BTC | Old Mode: Position Asset = 1.1 BTC Liability = -100,000 USDT Margin = 0.1 BTC New Mode: Position Asset = 1 BTC Liability = -100,000 USDT Margin = 0.1 BTC | Position Asset = 1 BTC Liability = -100,000 USDT Margin = 10,000 USDT |
| Short 1 BTC | Position Asset = 100,000 USDT Liability = -1 BTC Margin = 0.1 BTC | Old Mode: Position Asset = 110,000 USDT Liability = -1 BTC Margin = 10,000 USDT New Mode: Position Asset = 100,000 USDT Liability = -1 BTC Margin = 10,000 USDT |
Closing a Position
The closing logic depends on your margin currency.
| Trade Type | Base Currency as Margin | Quote Currency as Margin |
|---|---|---|
| Long | Repay the full quote currency liability. | Sell all the base currency assets in the position. Any remaining liability after this is offset by the margin. |
| Short | Sell all the quote currency assets in the position. Any remaining liability after this is offset by the margin. | Repay the full base currency liability. |
There are several ways to execute a closing trade:
1. Close Position Order (Market Close)
The system automatically places a market order to close the entire position.
- If Liability Currency == Margin Currency: The system sells all position assets. After repaying the debt, any remaining proceeds are returned to your funding account.
- If Position Asset Currency == Margin Currency: The system calculates the amount needed to buy back the full liability and places an order. Once the debt is repaid, any remaining assets are returned.
2. Manual Market/Limit Order
The user manually places an order to close the position, following the same logic as the system-led close.
3. Reduce-Only Orders
These orders will only execute if they reduce the size of your existing position, preventing accidental increases.
4. Non-Reduce-Only Orders
If a closing order is larger than the position, the excess amount will result in a new position being opened in the opposite direction. The required margin for this new trade is drawn from your account balance.
Risk Management Metrics
Maintenance Margin Ratio (mgnRatio)
This is the ratio of the net equity in your position to the required maintenance margin. If this ratio falls to 100%, you are at risk of liquidation. The formula varies by mode and trade type, but it generally follows this pattern for the new mode: (Net Equity) / (Maintenance Margin + Liquidation Fee).
Maintenance Margin (mmr)
This is the minimum amount of equity that must be maintained in the position. It is calculated as: |Liability + Interest| * Maintenance Margin Rate (MMR%). The MMR% is determined by the position's tier level.
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Order Cancellation Rules
A preventive risk measure is in place to cancel orders if your account equity falls below the sum of the maintenance margin for all positions and the initial margin required for any open orders. This helps protect your account from being unable to meet margin requirements. The system will cancel orders that use the same margin type as the one used to open your positions.
Partial Liquidation and Full Liquidation
When a position's Maintenance Margin Ratio falls to 100% or below, the system will intervene to protect the trader from further losses.
- Process: The system triggers a partial liquidation (also known as "deleveraging") to reduce the position size and lower its tier, aiming to bring the Maintenance Margin Ratio back above 100%. If this is insufficient, the position is fully liquidated.
- Order of Execution: The system first sells the position's assets to repay the debt. Only after the assets are fully sold will it use the allocated margin.
- Auto-Deleveraging (ADL) & Insurance Fund: If a position is liquidated at a worse price than its bankruptcy price, causing a negative balance, the exchange's insurance fund is typically used to cover the loss, protecting other traders.
Example:
A user has a long BTC-USDT isolated margin position using BTC as margin. If the price drops and the Maintenance Margin Ratio hits 100%, the system will start selling the position's BTC assets to repay the USDT debt. If selling all assets isn't enough, it will then use the BTC margin to cover the remainder.
Frequently Asked Questions
What is the main advantage of isolated margin?
Isolated margin limits your risk to the specific amount of capital you allocate to a single trade. If the trade is liquidated, you only lose the margin you committed to that position, and the rest of your portfolio remains untouched.
Should I use the base or quote currency as margin?
Your choice depends on your market forecast. Using the base currency (e.g., BTC for a BTC/USDT trade) can be beneficial if you believe its value will increase overall. Using the quote currency (e.g., USDT) is often simpler for calculating profits and losses in stable value terms.
How is the liquidation price calculated?
The liquidation price is not a single fixed number. It is dynamically calculated based on your position size, leverage, borrowed amount, interest, the chosen margin currency, and the current maintenance margin rate tier. The formulas provided above give the estimated price.
What happens if my order is canceled due to the risk threshold?
This is a safety feature. It means your account equity was too low to support both your existing positions and your new orders. The cancellation of same-type orders helps stabilize your account and prevent immediate liquidation.
What is the difference between partial and full liquidation?
Partial liquidation (deleveraging) automatically reduces your position size to a safer level, hopefully allowing you to stay in the trade. Full liquidation closes your entire position once it has no remaining equity.
Does the insurance fund guarantee I won't owe money after liquidation?
In well-regulated trading environments, the insurance fund is designed to prevent negative balances for users on liquidated positions, meaning you generally cannot lose more than your initial margin. However, it is crucial to understand the specific policy of your trading platform.
Conclusion
Isolated margin trading offers a clear and controlled way to employ leverage. By understanding its core components—from position fields and trading rules to the critical risk management mechanisms of order cancellation and liquidation—traders can make more informed decisions. This knowledge is essential for effectively managing risk and protecting capital while seeking amplified returns. Always ensure you fully comprehend these processes before engaging in leveraged trading.