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Leverage on FTX Drops to One-Fifth amid Criticism of Margin Trading

UTC by Bhushan Akolkar · 3 min read
Leverage on FTX Drops to One-Fifth amid Criticism of Margin Trading
Photo: Depositphotos

With regulatory action worldwide catching up the pace, FTX and other crypto exchanges are taking key measures on over leverage margin calls to avoid the wrath of the regulators.

A week after raising the largest-ever funding in crypto history, crypto exchange FTX has decided to reduce the limit for margin trading. Reportedly, this move is to safeguard itself against the upcoming regulatory storm. On Sunday, July 25, FTX exchange CEO Sam Bankman-Fried made the announcement of limiting the amount for margin trading debt-traders. Thus, the leverage on FTX has gone down from 100x previously to now just at 20x. This is a big move and it potentially can play a major role in daily trading volumes.

“An effective margin system is integral to an efficient economic system. There are limits to everything, though,” said Bankman-Fried.

Previously, there have been concerns that higher leverage has a major impact on market volatility. But the FTX CEO has refuted this saying that it only forms a small part of the company’s business. In his recent Twitter thread, Bankman-Fried noted that less than 1% of volumes on FTX come from margin calls. In contrast, there are several exchanges wherein margin calls contribute 5% of the total volume.

Thus, the FTX CEO said that his company encourages only “responsible trading”. He further added that FTX’s product and margin systems cater only to “sophisticated users”.

“All of that being said, there’s been a bunch of discussion recently around high leverage (> 20x). Nearly every crypto derivatives exchange allows it, and nearly every one will say the same thing: It’s a tiny fraction of volume and positions. And so, after lots of back and forth, we’re going to be the ones to take the first step here: a step in the direction the industry is headed, and has been headed for a while. Today, we’re removing high leverage from FTX. The greatest allowable will be 20x,” wrote he.

Binance Has Also Limited Margin Trading

Soon following SBF’s tweets, Binance CEO Changpeng Zhao tweeted that his exchange Binance has already limited margin trading. Taking a dig at the FTX CEO, CZ wrote:

Binance futures started limiting new users to max 20x leverage last Monday, Jul 19th, 7 days ago. (We didn’t want to make this a thingy). In the interest of Consumer Protection, we will apply this to existing users progressively over the next few weeks.

Binance has been in deep waters over the last month and so. The crypto exchange has been facing the heat from regulators across the globe. Last week, Binance also suspended its stock tokens service just in three months of starting it.

Coming back to FTX, SBF noted that the exchange has some cool announcements in the coming time. With massive fundraising, the exchange is planning to expand its operations aggressively. The FTX CEO acknowledged that a majority of these funds shall be used in key acquisitions. Sam Bankman-Fried also showed the desire for a possible Wall Street listing going ahead.

Blockchain News, Cryptocurrency news, News
Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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