FTX limits leverage
In a series of tweets published on Sunday 25 July, FTX founder Sam Bankman-Fried announced that the exchange would now limit the maximum leverage available on its trading platform to x20.
In a nutshell, leverage is a factor that is applied when taking a trading position, allowing for greater exposure to the market. However, this practice is risky because it allows for greater gains, but also amplifies the risk of losses.
According to Bankman-Fried, this decision was made in light of his platform’s efforts to “encourage responsible trading.” He said that leveraged trading does not account for a significant portion of FTX’s overall volumes, estimating that the average factor applied is x2.
“This will affect a tiny portion of activity on the platform, and while many users have expressed a desire to have this high leverage option, very few use it,” justified the FTX CEO.
This decision took effect immediately following the announcement, this Sunday, July 25, 2021.
Read more – What is leverage and how does it work?
A move quickly followed by Binance
In the wake of this, Binance, the world’s largest cryptocurrency exchange platform, followed suit with its US competitor.
After already introducing a x20 leverage limit for all new registrants on July 19, Binance Futures is preparing to apply the same limit for all its users. This news was announced via a tweet this Sunday, July 25, by Changpeng Zhao, CEO of Binance.
“In the interest of consumer protection, we will gradually apply this to existing users over the next few weeks,” the Binance CEO explained.
The reaction from the crypto community has been largely positive, with many people pointing out the risks associated with too much leverage in particular.
Digging deeper – Binance’s U.S. arm considers an IPO
A push to regulate cryptocurrency trading
In October 2020, while the Binances Futures trading tool only offered leverage of up to x20, the limit on the BTC/USDT pair was increased to x125. In this case, an investment of $100 was equivalent to an exposure of $1,500.
Similarly, in May 2021, FTX added the “high leverage” option to its trading tool. This gave its users the ability to apply a factor of x50, x100 and even x101 to all their position taking.
Aoday, both platforms are backtracking and clamping down on leverage by a factor of x20 again. This backtracking comes at a time when global regulators seem to be increasingly interested in the regulation of cryptocurrency exchanges.
Finally, this initiative can only be welcomed and supported. Indeed, the use of leverage in trading is extremely risky and perilous, even more so in a market as volatile as cryptocurrencies.
Bitcoin proved it to us again last night with an unexpected +16% rebound in just 5 hours. According to data from the website bybt, this bullish move led to massive liquidations totaling more than $1 billion, especially because of the many leveraged positions.
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About the author: Lilian Aliaga
Freelance writer located between Paris and Toulouse. I want to share my passion for the world of crypto-currencies to as many people as possible. I am also interested in technical analysis and trading.
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