Isolated Margin

Below is an overview of Isolated Markets, Isolated Margin, Target Leverage, and Unopened Isolated Positions.

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Written by dYdX Operations Services Ltd.
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Isolated Markets

Isolated markets are markets that require traders to use isolated margin when placing trades.

Isolated markets are defined at the Protocol level, and are decided via governance whenever a new market is added.

Isolated markets are markets that have segregated pools of collateral and their own insurance fund. Each isolated market, then, has its own individual risk properties. This enables a protocol to more safely support a much greater range of market types.

Isolated Margin

Isolated margin introduces the option for traders to trade any market as an isolated position. Thus, traders have the ability to confine collateral to a specific position, and manually adjust their collateral for that given position.

Equity Tier Limits

When opening an isolated position via a long term order, $20 USDC of margin must be backing the position or else the order will fail due to equity tier limit checks.

Target Leverage

Target leverage determines the amount of collateral transferred on a trader’s next order. Adjusting target leverage will not transfer any collateral until a new order is placed.

As an example, if a trader chooses 5x for target leverage, and then places a market order buying $100 of BTC, $20 USDC will be transferred to the user’s isolated position.

When reducing an open position, no additional collateral will be transferred to the isolated position.

Unopened Isolated Positions

When a trader does not have an open position on a market that he wants to trade with isolated margin, unopened isolated positions are created when placing unfilled limit orders.

Unopened isolated positions are isolated margin orders that have not yet been filled AND when a trader does not have an open position for that same market. For these types of orders, collateral must be allocated prior to the order being filled.

The UI will automatically transfer collateral back to a trader’s cross account when all unopened isolated positions orders for a specific market are cancelled.

Example

Assume trader has zero open orders or positions, has set his target leverage to 2x, and that market price for BTC is $70,000

If a trader places a limit order to buy 1 BTC at $60,000, then $30,000 USDC will be allocated to that unopened isolated position. If the user then places another BUY order of 2 BTC at $30,000, an additional $15,000 will be transferred to the unopened isolated position, bringing the total to $45,000.

If the trader then cancels both orders, the UI will transfer $45,000 USDC to the trader’s cross-margin account. If the trader only cancels one order, no collateral will be moved back to their cross account.

FAQs

Are isolated markets safe?

Crypto-assets are often volatile, and each isolated market has its own risk properties.It is up to the trader to conduct appropriate research and decide what risk they are comfortable trading. Some properties traders should consider before trading an isolated market are the oracle sources being used for a market and the spot liquidity for that market. As a general rule of thumb, as a market has fewer oracle sources and thinner liquidity, the riskier it becomes.

Can you tell me a bit more whats happening at a protocol level when using Isolated Margin?

Isolated margin utilizes native subaccount functionality on the protocol. Therefore, the UI moves collateral from a trader’s cross subaccount (subaccount 0) to other subaccounts that have zero open positions or orders in them. When an isolated subaccount has zero open positions or orders in it, collateral in that subaccount will be moved back to the trader’s cross subaccount (subaccount 0). More information on the mapping of subaccounts that the funds are moved to and from is open sourced at docs.dydx.exchange.

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