Isolated Margin
Margin allocated to a single position, limiting risk to that position alone.
What is Isolated Margin?
Isolated margin on a Perp DEX refers to a risk management approach where the margin (collateral) for a specific trading position is separate from other positions or funds in a trader’s account. For example, if a trader opens a 10x leveraged BTC perpetual swap on GMX with $1,000 in isolated margin, only that $1,000 is at risk of liquidation, protecting other positions or wallet funds.
This contrasts with cross margin, where all funds in an account are shared across positions. Isolated margin allows traders to control risk per trade, making it ideal for high-risk strategies or volatile markets. Perp DEXs implement this via smart contracts, ensuring transparency and precise margin tracking for each position.
Related Terms
Overcollateralization
A requirement for borrowers to deposit collateral worth more than the loan amount to mitigate risk.
Liquidity (DEX)
Liquidity on a decentralized exchange (DEX) refers to the pool of digital assets locked in smart contracts, enabling seamless token trading by ensuring sufficient supply and demand for transactions.
Transaction Fee
A cost paid to process and validate actions on a blockchain network, such as Ethereum, varying based on network demand and complexity.
Liquid Staking
A staking mechanism on Ethereum where users receive derivative tokens representing their staked ETH, allowing them to use these tokens in DeFi activities while earning staking rewards.
Money Markets
Financial markets for short-term borrowing and lending, typically under one year, involving instruments like repos, commercial paper, and CDs.
Loan-to-Value Ratio (LTV)
The ratio of a loan’s value to the value of its collateral in DeFi lending.