Isolated Margin Operation on Binance: Detailed Explanation
Isolated margin is a type of leveraged trading operation offered by Binance, which allows traders to increase their buying power using borrowed funds, but with controlled risk. Unlike cross margin (where the entire margin account balance is used as collateral), in isolated margin, the trader defines a specific amount of collateral for each open position, limiting the risk only to the capital allocated for that operation.
How Does It Work?
1. Enable the Margin Account
First, the user needs to activate the margin account on Binance and deposit assets (such as BTC, USDT, etc.) as collateral.
2. Select the Trading Pair and Isolated Mode
When choosing a pair (e.g., BTC/USDT), the trader selects the "Isolated Margin" mode in the interface. This allows setting aside dedicated collateral just for that position.
3. Allocate the Collateral (Margin)
The trader decides how much of their portfolio will be reserved as collateral for that operation. For example: if allocating 100 USDT, only that amount will remain "isolated" as collateral.
4. Set the Leverage
Binance allows choosing leverage levels (e.g., 5x, 10x). With 10x, for example, 100 USDT of collateral allows trading up to 1,000 USDT in position value.
Note: Higher leverage increases gains but also losses.
5. Open the Position
The trader executes the order (buy or sell). The total value of the position is composed of the own capital (collateral) + funds borrowed from Binance.
6. Monitor the Position and the Liquidation Price
Binance calculates an automatic liquidation price for each position, based on the collateral and leverage. If the asset price reaches that level, the position is automatically closed to avoid losses greater than the isolated collateral.
- Example: If you trade with 10x and the market drops by 9%, the position is liquidated.
7. Close the Position
Upon closing the operation, the trader returns the borrowed funds + interest (calculated hourly), and the remaining profits/losses are credited/debited from the account.
Advantages of Isolated Margin
- Risk Control: Limits losses to the amount allocated as collateral, protecting the overall account balance.
- Flexibility: Allows managing multiple positions with different levels of leverage and collateral.
- Capital Efficiency: Ideal for short-term strategies or for traders who want to test ideas without committing all capital.
Risks
- Forced Liquidation: If the market moves against the position, the loss is limited to the isolated collateral, but liquidation occurs quickly in volatile scenarios.
- Interest on Loans: Leveraged funds generate interest, which increases over time.
- Complexity: Recommended for experienced traders due to the need for constant monitoring.
Summary
Isolated margin on Binance is a powerful tool for those looking to maximize opportunities with precise risk management. By isolating the collateral, the trader avoids exposing their entire portfolio to a single operation, making it ideal for specific strategies or volatile markets. However, it requires discipline to avoid liquidations and understanding of the costs involved (interest and fees).
