What is Isolated Margin?
Isolated Margin means that you can select to use only a specific amount of capital as margin for a particular position or combination of positions, and trade that as a segregated bucket of risk relative to the rest of your asset base. So, rather than risking all the marginable assets in your account, you only risk the amount of margin you have allocated to those positions.
How does it work?
On EQONEX we offer Isolated Margin through the use of Sub Accounts. This means that you can transfer assets that can be used for margin (such as USDC) into a Sub Account, and use this Sub Account to open leveraged positions, such as BTC or ETH Perpetuals.
From a risk perspective, your Sub Accounts are completely separate from your Main Account and your other Sub Accounts in the sense that a liquidation in one of your accounts will not affect any positions or assets in any of your other accounts. If liquidation does occur in one of your accounts, you can only ever lose the marginable assets in that specific account.
You can open a maximum of 6 Sub Accounts at any one time. To get more information on how to open a Sub Account and transfer funds between your Main and Sub Accounts, see How to Create and Manage a Sub Account.
Assume Alice and Bob both have 200 USDC in their Main Accounts.
Bob leaves all his USDC in his Main Account and buys 0.1 BTC Perpetuals at a price of 50,000 USDC.
Alice moves 100 USDC into a Sub Account to use as Isolated Margin, and also buys 0.1 BTC Perpetuals at a price of 50,000 USDC.
How you can use Isolated Margin to set your leverage
Because Bob is using 200 USDC to fund his 5,000 USDC position, we say Bob’s leverage = 5,000 / 200 = 25x.
Alice is using only the 100 USDC in her Sub Account to fund her 5,000 USDC position, so we say Alice’s leverage = 5,000 / 100 = 50x.
The Initial Margin (IM) required on a BTC Perpetual position that is worth 5,000 USDC is 56.25 USDC. Therefore, the maximum leverage that either of them could have used is based on the IM requirement: 5,000 / 56.25 = 89x.
Alice and Bob could have achieved using the maximum amount of leverage offered by EQONEX by transferring the exact margin requirement of USDC 56.25 into the Sub Account.
Note that both have the same Margin Liquidation Trigger of 28.13 USDC, which is half of the Initial Margin requirement. However, the most Alice can lose is her USDC 100 in the Sub Account compared to Bob’s USDC 200, but naturally, this means Alice will be liquidated sooner, at a higher price, than Bob if the price of BTC declines.
How Isolated Margin can protect some of your assets
Assume the market moves down by 2.5%. This means that the loss on the initial position will be 125 USDC (2.5% x 5,000 USDC).
As Alice was only using 100 USDC as margin, this means that she has been liquidated when the market moved down, but she has only lost 100 USDC.
Bob, on the other hand, will have seen his Total Account Margin drop from 200 to 75 but his position remains open.
So, at this stage, Alice has lost 100 USDC whilst Bob has lost 125 USDC. However, Alice no longer has a position in BTC perpetuals.
0.1 BTC Perpetual
0.1 BTC Perpetual
Total Account Margin
Margin Liquidation Trigger
New BTC Perpetual Price
Account is liquidated?
Remaining Total Account Margin
0 BTC Perpetual
0.1 BTC Perpetual
New Notional Value
If the market continues to fall, Bob may also get liquidated and lose the rest of his Total Account Margin, making a total loss of 200 USDC compared to Alice’s total loss of 100 USDC.
Please contact our Customer Support team via email@example.com or click on the chat widget at the bottom right-hand side of the EQONEX page for further assistance or more information.