The Japan Virtual Currency Exchange Association (JVCEA), the self-regulatory organization (SRO) of the Japanese cryptocurrency exchanges, has proposed a cap on the maximum leverage offered by exchanges for margin trading.
According to a report from the Japanese news outlet Jiji.com, the proposed maximum sum is four times the deposit a client has in their account with the exchange. In other words, the maximum leverage available for trading in cryptocurrency derivatives would be set to 1:4.
The purpose of the self-imposed cap is to prevent investors from big losses in case of sharp price fluctuations and major market volatility – something that cryptocurrencies are generally prone to.
The JVCEA is also working on rules on insider trading and advertising and plans to apply for accreditation with Japan’s Financial Services Agency (JFSA).
Trading on margin is most popular among forex traders and is one of the main means for forex brokers to attract clients. Margin trading, however, is a two-edged knife. Whereas being able to “borrow” funds from the broker can increase profit, it also raises the risk of losing a lot more than the client actually has or is prepared to pay back. The bigger and more reputable forex brokers have a negative balance protection option that prevents traders from losing more funds that they have.
Until recently, in most countries there were no rules or limits on the maximum leverage that a broker can offer to its clients. In August, however, the EU introduces a union-wide cap of 1:30 on contracts for difference (CFDs) on major forex pairs and 1:2 for cryptocurrencies. In Japan, there is also a cap on the leverage for forex trading, set at 1:25.
Margin trading is not that widespread among cryptocurrency traders and only a handful of crypto exchanges offer this option. Some of the regulated Japanese crypto exchanges, such as Quoinex, bitFlyer, Zaif and Coincheck, also provide the trading on margin feature. The highest leverage is available on Quoinex at 1:25.
Crypto trading in Japan is extremely popular. According to recent JFSA data, in 2017 the country had over 3.5 million cryptocurrency traders who generated a trading volume of $97 billion.
This article appeared first on Cryptovest
