Two of the world’s biggest cryptocurrency exchanges, Binance and FTX, announced that they are reducing margin limits down to 20x on the high-risk leverage trading on their platforms.
FTX Reduce Leverage Limits to 20X
FTX CEO Sam Bankman Fried told his Twitter followers on Sunday that his crypto exchange has lowered its margin trading limit from 101x to 20x. Bankman-Fried told his Twitter followers the news on Sunday when he stressed that “An effective margin system is integral to an efficient economic system” and added that “there are limits to everything though.”
He asserted that leveraged trading is not a significant part of an exchange’s overall volumes and is only used by a small portion of its user base. He pointed out the average amount of leverage used on the exchange is only around 2x.
“And while we think that many of the arguments are high leverage miss the mark, we also don’t think it’s an important part of the crypto ecosystem, and in some cases it’s not a healthy part of it,” he said.
Bankman-Fried argued that this is the direction the crypto industry is heading in, claiming his exchange is making the first step.
“This will hit a tiny fraction of activity on the platform, and while many users have expressed that they like having the option, very few use it.”
“At FTX, way less than a percent of volume comes from margin calls,” Bankman-Fried said. “This contrasts with a few platforms which are sometimes >5%, and some which removed data because it looked bad.”
Also Read: FTX Closed The Highest Deal Of Series B Funding Rounds
Bankman-Fried finally says, “we have a lot of cool new features and announcements coming down the pipe.”
Binance Reduce Leverage Limits to 20X
Binance followed FTX and also cut its leverage trading from 100x limit to 20x.
Binance world’s biggest crypto exchange announced earlier on 19 July that they were introducing a 20X leverage limit for new users. But as per a tweet by CEO Changpeng Zhao on Sunday, Binance Futures was preparing to apply the same limit for existing users soon.
“We didn’t want to make this a thingy,” the CEO said on Monday viaTwitter, a week after making the changes.
The exchange CEO did not mention the reason behind the decision but said that upcoming changes for existing users were “in the interest of consumer protection.”
Launched in July 2019, the Binance future trading platform initially allowed investors to open leverage at a maximum of 20 times. It means that an investment of $1,000 could be turned into a bet of $20,000.
Binance’s association with high-risk trading is one of the main reasons behind regulators worldwide issuing warnings. Since June, the exchange has faced increased scrutiny from financial regulators in the US, Thailand, Poland, and the Cayman Islands. Amid these regulations, Binance announced the discontinuation of the stock token service.
According to the New York Times article, Mr. Zhao, the founder of Binance, conceded in an interview that “Volatility is amplified by leverage”.
Many crypto traders gave a positive response to the exchanges’ move encouraging responsible trading. On the other hand, many traders still feel 20x as a high-risk leverage trading.
