FTX cryptocurrency exchange reduces maximum leverage limit to 20x
FTX cryptocurrency exchange reduces maximum leverage limit to 20x By Hannah Perez

FTX will limit users to a maximum leverage of 20x to promote “responsible trading”. Binance also announced a dramatic reduction in its leverage limit.

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The popular cryptocurrency derivatives exchange, FTX, has announced a new maximum limit for leveraged trading. The move, which was announced yesterday, reduces the size of trades to a maximum leverage of 20 times.

Customers of one of the largest exchanges by trading volume will have to get used to the move, which reduces the maximum leverage from 101x to 20x. The exchange’s founder and CEO, Sam Bankman-Fried, announced the new trading limits on Twitter over the weekend and claimed it was part of an effort by FTX to “encourage responsible trading

.”

Bankman-Fried added that the move will not affect the platform or most customers. The CEO claimed that leveraged trading is not a significant part of the exchange’s overall volumes, estimating that the average open margin position on FTX is leveraged at approximately 2x, stating:

This will affect a small fraction of the activity on the platform, and while many users have expressed that they like having the option, very few use it.

FTX and Binance cut leverage limits

FTX’s move comes shortly after another industry giant also took action to begin reducing leverage limits

.

Following a series of tweets from Bankman-Fried informing the move, Binance CEO Changpeng Zhao also took to the social networking platform to make it known that the exchange decided to start “limiting new users to a maximum leverage of 20x

.”

Binance

made the decision last Monday, July 19, although it had not reported it publicly. For its part, FTX’s move went into effect yesterday (July 25). Although for both exchanges, the decision seems to respond to different reasons.

In this regard, Zhao explained that Binance’ s move comes “in theinterest of consumer protection“. He added that the platform will continue to apply this restriction to existing users “progressively over the coming weeks

.”

For Binance, the move comes nearly two months after the exchange announced support for Bitcoin (BTC) / Tether (USDT) trading contracts by a margin of up to 125x. It also emerged

e amid increasing scrutiny from regulators in several countries around the world to the major exchange.

In addition, Binancealso announced today that it will remove margin pairs Australian dollars, euros and British pounds by August 12.

Will other platforms replicate the move?

Often referred to as margin trading, leverage allows traders to increase their positions without the need for funds. For example, at 100x leverage, a trader can turn a USD$100 bet into a USD$10,000 bet without needing the full ten thousand dollars.

The higher the leverage, the greater the value of any trade you can make. Therefore, high leverage can also lead to high capital losses. High leverage trading has long been considered risky and regulators in some countries have limits on the amount of leverage an exchange can offer.

Several enthusiasts and industry veterans discussed FTX and Binance’s decision. Some, including Galaxy Digital‘s Mike Novogratz, felt that 20x leverage continued to be high, while, others claim the move will motivate many more exchanges to follow suit.

The assumption would be [that] most other platforms will follow suit over time,” tweeted Morgan Creek Digital’s reputable Anthony Pompliano of Morgan Creek Digital regarding FTX’s announcement. Bankman-Fried agreed and said that was his guess as well.

Meanwhile, exchanges like Huobi Global have already pushed their own restrictions, limiting margin trading for new and existing users. Huobi, which took up the measure last month, cited concerns about regulations in China and reduced its allowable leverage from 125x to less than 5x.

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Sources: Twitter, Cointelegraph, The Block, Decrypt, file

Version by Hannah Estefania Perez / DiarioBitcoin

Image by Unsplash