The world’s largest cryptocurrency exchange decides to significantly reduce its leverage. This may be in response to the regulatory problems it has been experiencing recently.
The move from FTX
Initially, the new restrictions were applied by the FTX exchange. The maximum leverage there was 100x. For the sake of consumer protection, the platform decided to reduce the allowable leverage to 20x. The leader of the exchange Sam Bankman-Fried informed via his Twitter account that the average leverage used by FTX users is 2x, so the changes will not be so severe and will affect a relatively small percentage of users.
Binance’s response
FTX has decided to follow the lead of Binance. The announcement in this matter, also via Twitter, was made by the CEO of the exchange Changpeng Zhao (CZ). He informed his followers that from Monday, July 19 the restrictions for new users have come into force, for which the maximum leverage will now be 20x. Previously, it was as high as 125x. Importantly, in the coming weeks, all traders trading on Binance Futures are to be subject to the same regulations.
While the news about FTX did not make such a big impression on the market, the information about Binance did. It is worth recalling that Binance is the platform with the largest volume of cryptocurrency trading. In addition, it faces increasing regulatory problems in many countries and administrative regions of the world. It is speculated that the reduction of leverage is one of the forms of yielding to the pressure of regulators. This may be justified especially since CZ has made it clear that it did not want to introduce such a restriction at all.
Adding fuel to the fire is the fact that shortly afterwards another announcement appeared indicating that withdrawals from Binance for unverified users (without KYC) will be limited from 2 BTC to 0.06 BTC per day.
Leveraged trading and the risks associated with it
Leveraged trades are very popular. We discussed their characteristics in the article under the title “Leveraged trading”. If you are interested in such solutions, be sure to take a look to learn more about them.
Keep in mind, however, that trading on the basis of this derivative instrument is fraught with extremely high risk. The higher the leverage you decide to use, the higher the risk. Therefore, there are limitations. This type of instrument is very often used by new, inexperienced stock market users who wish to get rich in a flash. As you know, using the maximum leverage so far available on Binance, 125x, is a potentially huge profit. But a change in the price of the cryptocurrency by 0.8%, in a different direction than the investor anticipated, will result in complete deprivation of his funds. Considering the level of volatility of crypto assets, as well as the failure rate of exchanges, the potential risk is at an above-average level.
