(Newswire.net — October 29, 2018) — The Japan Virtual Currency Exchange Association (JVCEA) was recognized by the FSA as a self-regulating body in the cryptocurrency exchange market.
The JVCEA has been calling for a leverage cap of 4:1 on margin trading. A limit on leverage trading for crypto currencies currently does not exist, but many platforms have their own cap of 25 times the deposit amount. Experts suggest a cap of 2:1 or 4:1 at the highest level. The FSA is considering new rules that will establish a leverage limit on cryptocurrency trades.
Leverage is a trading strategy that allows a trader to make a trade on leverage, or at a higher rate than what is in the trader’s account. This means a trader can leverage a current position at 3:1 or $9,000 if they have just $3,000 as a deposit.
The trading tactic can provide a high rate of return, but the risks are also amplified, leading to significant losses among traders.
Japan’s FSA and JVCEA state that the majority of all cryptocurrency trades, or 80% of all trades, were margin trading. This came out to $613 billion in trading activity.
Current limits allow for 25 times the margin limit, or a deposit of $1,000 can open a position of $25,000. The entire deposit can be cleared out with just a 4% decline in position, leaving the trader with significant losses.
Cryptocurrencies are volatile with high price swings.
The FSA has been implementing new laws and regulations in the crypto market in an attempt to help create a robust market. The FSA is not interested in eliminating the crypto market. Instead, the FSA is hoping to strengthen the market and entice more traders to enter in trades in Japan.
User concerns have resulted in the FSA taking action on leverage trading. Users have expressed their concerns after bitcoin thefts. Inquiries rose to 218 between January and March as users hope to be able to enter trades safely, not enter into leveraged trades without fully understanding the extent of the losses they may suffer.
Cryptocurrencies suffer major losses, with Ethereum trading down almost 90% from yearly highs. The overall crypto market, once valued at $1 trillion, has fallen to a $190 billion market in the past nine months.