Exchange Counterparty Risk vs Isolated Margin

The risk that an exchange fails or becomes insolvent, rendering derivatives positions — which are contractual claims on the exchange, not direct asset ownership — unrecoverable; the FTX collapse in November 2022 resulted in approximately $8 billion in user funds lost; mitigated by limiting single-exchange exposure to 30% of total capital.

A margin mode in which only the capital specifically assigned to a position is at risk; if liquidated, the loss is limited to the assigned margin and does not affect the rest of the account balance; the correct default mode for speculative directional trades.