Isolated margin

A margin mode in which the loss on a position is capped at the collateral specifically assigned to it, so a liquidation there cannot reach the rest of the account balance.

Definition

Under isolated margin, each position gets its own ring-fenced collateral. That amount is the most the position can lose. If the price moves far enough against it, the position is liquidated and the assigned collateral is gone, while the rest of the account is untouched.

What that buys you

A known worst case per trade, decided before you enter rather than discovered afterwards. That is what makes isolated margin the usual recommendation for a first position, for an unfamiliar market, and for anything speculative enough that you want the damage bounded.

What it costs you

The position has no reserves. Collateral sitting elsewhere in your account cannot come to its rescue, so a position in isolated mode is liquidated at a price where the same position under cross margin would still be open.

The consequence is that isolated positions are stopped out by volatility more often. You are not exposed to more loss, you are exposed to it more frequently, in smaller pieces.

If you want to move the liquidation price further away, you have to add collateral to that position deliberately, and most interfaces let you do so while it is open.

Isolated versus cross

Isolated bounds the size of a failure. Cross margin reduces the chance of one by pooling collateral, and accepts that a failure can then reach further. Neither is the safe option in the abstract, and many traders run both, isolated for speculative positions and cross for a core book.

Where you will run into it

As a mode selector on the order ticket of most perpetual DEXs, chosen before the position is opened and often not changeable afterwards without closing it.