The cutback in margin trading intends to trim down the increasing losses over the volatility of these assets and safeguard investor’s interest.
Why Defining New Margin Trading Limit is On Hype in Japan?
Japan Virtual Currency Exchange Association/JVCEA’s decision of reducing margin trading is rolling out Media in response to unsteady margin limit of exchanges. However, some exchanges permit leverage up to 25times the deposit which annihilates the trader’s entire deposit if there is a 4% price drop. The statistical data provided by the Japanese FSA reveals that the share of margin trading exceeds 90 percent of total trading volume. The limits are effective because local trading platforms lack defining the limit of funds investors can leverage for trading. However, new investors are likely to suffer an extensive loss in margin trading.
Eventually, leveraging limit for margin trading by JVCEA can protect the investors. On top, the association is open towards investor’s decision on setting up their own limits.
According to reports, Japanese crypto exchange sets its own limit for margin trading;
DMM Bitcoin offers 5 times leverage, Zaif, operated by Tech Bureau offers leverage up to 7.7 times, GMO Coin offers 5 times and 10 times leverage for BTC/JPY but only 5 times leverage is available for the margin trading of BCH, ETH, LTC and XRP against the JPY. , Bitflyer enables leverage up to 15 times, Bitpoint allows 2X, 5X, 10X and 25x for BTC/JPY, BTC/USD, BTC/EUR and BTC/HKD.
What is Margin Trading?
Margin trading refers to a situation where a person borrows a loan from a broker who gives you an ability to leverage funds and then taking advantage of the market situation. Since the cryptocurrency market is highly volatile, the amount you borrow depends on leverage ratio which is very small. In essence, controlling the large sum of crypto with little investment will be a feasible solution.
Also Read – Japan is now the new heart of Bitcoin
Self-Regulatory Body to Fight Against Crypto Hacks
Japan Virtual Currency Exchange Association comprises of 16 government-approved crypto exchanges from Japan. The association was set up to fight against increasing crypto hacks which was happening quite often in Japan. Apparently, the self-regulatory body is announcing measures to safeguard the interest of investors and traders across the crypto industry. It states as follows;
The self-regulatory body for Japan’s cryptocurrency exchanges is firming up plans to set a 4-to-1 leverage limit on margin trading, aiming to reduce the risk of massive losses given the volatility of these assets.
Nonetheless, the decision of limiting the margin trade is just a form of regulations but the association is looking to get approval from FSA. As a result, the widespread adoption of this measure would force major market players to set the limit and follow the suit.