Binance, FTX reduce the leverage offered to customers
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Two leading cryptocurrency exchanges have taken steps to reduce the leverage available their customers after criticism they were selling high-risk products to nonprofessional traders.
FTX on Sunday reduced the maximum leverage available to customers from 101x to 20x, while Binance made a similar move on July 19 for new customers, both exchanges’ chief executives announced on Twitter.
.@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.
Stay #SAFU. 🙏
— CZ 🔶 Binance (@cz_binance) July 26, 2021
Sam Bankman-Fried, FTX’s billionaire chief executive, tweeted that the exchange was making the move “after lots of back and forth” to encourage a healthier crypto ecosystem.
7) For us, like liquidations, it’s way less than 1% of our volume and positions. It’s not a significant part of the exchange.
It’s also not what chiefly contributes to volatility. Liquidations do, one some exchanges (although generally not so much FTX!). But > 20x is small.
— SBF (@SBF_Alameda) July 25, 2021
It’s a similar move to curbs on contracts for difference ordered by the Australian Securities and Exchange Commission last year. As of March 29, Australian forex brokers can’t offer more than 30x leverage on major currency pairs (and 2x on crypto). Some brokers had been offering CFDs for up to 400x.
For those unfamiliar, here’s an example of how these products work. On Bitmex, the leveraged exchange that has pioneered these products, someone could pay US$100 for exposure to US$10,000 in Bitcoin (long or short). Assuming someone took a long position, that would mean a big upside if Bitcoin rose. But BTC would need to drop just marginally — from its current level of US$38,536 to just US$38,289 — for their position to be “liquidated,” essentially wiped out.
Both Bitmex and ByBit, another crypto derivatives exchange, had not yet given any sign that they would follow FTX’s lead.