In an effort to promote responsible trading methods, Sam Bankman-Fried, the CEO of FTX, a rapidly growing crypto derivatives exchange, has reduced the maximum leverage.
Cryptocurrency derivatives trading platform FTX has made the decision to curtail hazardous trading by restricting the amount of leverage available to its members.
Sam Bankman-Fried (SBF), the founder of the cryptocurrency exchange, has cut the highest leverage accessible on the site to 20x, a considerable fall from the previous level of 101x.
On July 25, Bankman-Fried stated that the decision was made in light of the exchange’s attempts to “encourage responsible trading” in a tweet announcing the revised leverage restrictions.
The exchange’s overall volumes, he claims, are not dominated by leveraged trading. He estimates that the typical open margin position on FTX is leveraged by approximately 2x, and he states:
“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.”
The response from the cryptocurrency community was overwhelmingly positive, with many commenters emphasising the dangers of using excessive leverage in trading.
According to a Twitter user known as “Crypto Tolkien,” many new traders have turned into “permabears on Bitcoin and cryptocurrency” after losing their shirt due to heavy leverage in their initial trades.
Those who disagreed with this view claimed it was still excessive leverage and that the restrictions should be cut even further.
According to CoinGecko, FTX is the thirteenth-largest cryptocurrency exchange in terms of volume. By this writing, FTX’s daily volume is nearly $1.5 billion, with volume up 41 percent in the past 24 hours while Bitcoin rose by more than 10 percent, according to CoinMarketCap.
It was reported on June 16 by Cointelegraph that Huobi Global had implemented some of its own limits on margin trading for both new and existing customers. Huobi reduced its permissible leverage from 125x to less than 5x, citing concerns about rising government regulation in the country.
The restrictions in leverage come at a time when global regulators appear to be increasingly focusing their attention on unregulated cryptocurrency platforms.
Following an investigation into Binance’s practises, the Financial Conduct Authority of the United Kingdom ordered the cryptocurrency exchange to suspend all regulated activity in the nation. Following this, a number of high-street banks restricted their clients’ ability to conduct transactions to and from the exchange as a result.
Financial regulators in the United Kingdom have been cracking down on cryptocurrency loan startup BlockFi, with the Texas State Securities Board accusing the company of providing unregistered securities on July 22.
On July 20, it was revealed that FTX had shattered the previous record for the amount of money raised in a cryptocurrency fundraising round. A total of nearly 60 investors participated in the Series B investment round, which netted the exchange an astounding $900 million and increased the exchange’s valuation to $18 billion.
