Isolated Margin Leveraged Borrowing and Trading

In cryptocurrency trading, isolated margin leveraged borrowing and trading refers to a leveraged trading method by borrowing funds, with the core feature of isolating the risk of each position. Only the funds of a specific account are used as margin to avoid affecting other assets. The following is a detailed operation guide:

I. Core Concepts of Isolated Margin Leverage

1. Risk Isolation Each leveraged position calculates margin and risk independently. If a single position loses to the liquidation line, only that position will be force-liquidated without affecting other account assets.

2. Leverage Multiplier Different leverages (such as 2x, 5x, 10x) can be selected to amplify capital utilization, but risks are also amplified. For example:

• 1,000 USDT principal + 5x leverage → 4,000 USDT can be borrowed, with total trading funds of 5,000 USDT.

1. Interest Cost Borrowed funds need to pay interest (usually calculated by hour/day, such as 0.01%/hour), and long-term positions will accumulate costs.

II. Isolated Margin Borrowing and Trading Process (Taking Binance as an Example)

1. Open an Isolated Margin Leverage Account

1. Enter the exchange's "Leverage Trading" page and select the "Isolated" mode.

2. Complete the risk assessment and open the leverage account (KYC verification is required for some exchanges).

2. Transfer Margin

1. Select the currency pair (e.g., BTC/USDT) and click "Transfer Margin".

2. Transfer funds (e.g., 1,000 USDT) from the spot account to the isolated margin account of the currency.

3. Borrow Funds

1. Find the "Borrow" or "Financing" button in the isolated margin interface.

2. Select the currency (e.g., borrow BTC or USDT), enter the quantity, and confirm the borrowing interest rate and term.

   • Long Position: Borrow USDT and buy BTC (bullish).

   • Short Position: Borrow BTC and sell BTC (bearish).

4. Open a Position

• Long Position Example:

  1. Borrow 4,000 USDT (5x leverage), with total funds of 5,000 USDT.

  2. Buy 0.1 BTC at the price of 50,000 USDT/BTC.

  3. If BTC rises to 60,000 USDT, sell to profit 1,000 USDT (net profit after deducting interest).

• Short Position Example:

  1. Borrow 0.1 BTC (valued at 5,000 USDT) and sell to get 5,000 USDT.

  2. If BTC falls to 40,000 USDT, buy 0.125 BTC to repay, profiting 0.025 BTC (about 1,000 USDT).

5. Repay Borrowings and Close Positions

1. Active Repayment: Select "Repay" on the borrowing page, enter the amount, and the system will automatically calculate and deduct interest.

2. Position Closure Repayment: When selling positions, the system will first use profits to repay borrowings and interest, and the remaining funds will be returned to the account.

III. Key Risk Control Indicators

1. Margin Ratio Margin Ratio = (Account Net Value / Borrowing Value) × 100%

• When the margin ratio is lower than the maintenance margin ratio (e.g., 5%), force liquidation is triggered.

• Example: Account net value of 1,000 USDT, borrowing of 5,000 USDT → margin ratio of 20%.

1. Liquidation Line The minimum margin ratio preset by the exchange, and automatic liquidation will occur if it is broken. For example:

• The maintenance margin ratio for 5x leverage is usually 5%, meaning that a reverse price fluctuation of more than 20% may trigger liquidation.

IV. Precautions

1. Interest Accumulation The longer the borrowing time, the higher the interest, which may erode profits. It is recommended to operate in the short term or hedge interest costs.

2. Price Fluctuation Risk Leverage amplifies profits and losses, and stop losses need to be set (such as through "take profit/stop loss" orders).

3. Rule Differences Among Exchanges

   • Borrowing Interest Rate: Interest rates vary due to different currencies and market supply and demand (e.g., USDT interest rates are usually lower than BTC).

   • Liquidation Mechanism: Some exchanges support "partial liquidation" to avoid full loss.

4. Capital Management Avoid full positions. It is recommended to use no more than 30% of the account funds for leveraged trading.

V. Comparison with Cross Margin Leverage

Characteristics	Isolated Margin Leverage	Cross Margin Leverage
Risk Isolation	Independent calculation for individual positions, risk isolation	All positions share margin, possibly causing chain liquidation
Leverage Flexibility	Different leverage multiples can be set for each position	Unified leverage multiple, affected by overall margin
Application Scenarios	Short-term high-leverage speculation, hedging specific risks	Long-term positions, maximizing capital utilization

VI. Operation Example (Shorting ETH)

1. Preparation: Transfer 1,000 USDT to the ETH/USDT isolated margin account and select 5x leverage.

2. Borrowing: Borrow 2 ETH (current price: 1,500 USDT/ETH, value: 3,000 USDT).

3. Shorting: Sell 2 ETH to get 3,000 USDT.

4. Position Closure: If ETH falls to 1,200 USDT, buy 2 ETH for 2,400 USDT, and profit 600 USDT after repaying borrowings (after deducting interest).

5. Risk: If ETH rises to 1,800 USDT, lose 600 USDT, and the margin ratio drops to 40%, approaching the liquidation line (need to add margin or close the position).

Summary

Isolated margin leveraged borrowing and trading is suitable for users with clear directional judgments, controlling losses by isolating risks. During operation, closely monitor the margin ratio, interest costs, and market fluctuations. It is recommended to practice with small funds first and gradually increase positions after familiarizing with the rules.