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 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.

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 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.

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.

What are isolated markets?

Isolated markets are markets with segregated collateral pools and their own insurance funds. This allows the protocol to support a wider range of markets with different risk profiles.

What is the benefit of isolated markets?

By having segregated collateral pools and insurance funds, isolated markets can safely support a greater variety of market types, increasing the number of potential markets to trade.

How many markets will be available with isolated markets?

Isolated markets enable the new market widget universe to expand to >800 potential markets.

What is isolated margin?

Isolated margin allows traders to trade any market as a separate position, confining collateral to a specific position and manually adjusting collateral for that position. This provides better control and predictability over collateral management.

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.

Can isolated markets be upgraded to cross markets?

Not in Release 5.0. However, future releases will include functionality for governance to upgrade an isolated market to cross.

How will new markets be added?

Initially, adding new markets will follow the current governance process. Eventually, it will be fully permissionless, allowing markets to be listed instantly without governance approval.

What happens at a protocol level when using isolated margin?

Isolated margin uses native subaccount functionality. Collateral is moved from a trader’s cross subaccount (subaccount 0) to other subaccounts with no open positions or orders. When an isolated subaccount has zero open positions or orders, the collateral moves back to the cross subaccount.

What kind of markets will be available to list via the new market widget?

Markets available on at least two centralized exchanges or on at least one decentralized exchange fulfilling liquidity and market-cap guidelines will be listed. These guidelines are subject to change and are for optimal software compatibility.

How will prices be queried in the new isolated markets?

Prices will be queried directly from decentralized exchanges, starting with Raydium. Over time, more oracle sources (decentralized exchanges) will be added, such as Uniswap v3 on Base.

What is the difference between CROSS and ISOLATED perpetuals?

CROSS perpetuals share the same collateral pool and have no change in functionality. ISOLATED perpetuals, on the other hand, require a subaccount to hold no other perpetual positions and have separate collateral and insurance funds specific to each ISOLATED perpetual.

Can a subaccount with an open position in an ISOLATED perpetual hold other positions?

No, a subaccount with an open position in an ISOLATED perpetual cannot hold other perpetual positions. It must have its collateral stored in an account specific to that ISOLATED perpetual.

How are withdrawals managed for subaccounts with negative total net collateral?

Withdrawal gating logic has been updated. If a subaccount with negative total net collateral holds an ISOLATED perpetual position, withdrawals will be gated only for subaccounts with positions in that specific ISOLATED perpetual. Withdrawals are not gated for subaccounts with positions in CROSS perpetuals or other ISOLATED perpetuals.

What is the maximum number of subaccounts per address, and why was it increased?

The maximum number of subaccounts per address has been increased from 128 to 128,001. This increase is to accommodate the need for a subaccount to hold perpetual positions for each ISOLATED perpetual.

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