The JapanTimes News recently published an article talking about how the Financial Services Agency will limit leverage in cryptocurrency margin trading.
The FSA plans to introduce a new rule that will limit the amount of leverage you can have as twice the deposits of each trader. The industry’s self-imposed limitation was 4 times to reduce the risks associated with volatility and heavy fluctuations in price.
The agency has decided on the leverage cap of two times based on past price fluctuations and cryptocurrency regulations in Europe and the United States
Said the sources.
Current Limitations in Other Countries
Most countries are not limiting the leverage on cryptocurrencies as BitMEX is able to offer up to 100x leverage on Bitcoin and others.
Binance was actually able to offer 125x leverage on their futures trades, an insane amount of leverage that almost no one should ever use, even the most advanced traders.
Leverage is a double-edged sword, is there really a point in offering 125x leverage? Is that actually helping traders? Most likely not and here is why.
The cryptocurrency industry is perhaps the most volatile industry ever, even today. Keep in mind that at x100 leverage, just a 1% change in price to the downside will liquidate your whole position, meaning that you will lose everything.
Bitcoin and many others can go down or up 1% in mere hours, even minutes sometimes. Clearly, having such a large leverage option is not exactly helpful for traders.