FTX removes high leverage from its platform
FTX, one of the fastest-growing crypto exchanges in the world, has announced that it would be reducing the maximum leverage that it allows for traders on its platform, and henceforth, the maximum leverage would be only 20x.
The exchange had been allowing leverage of up to 100x so far but based on certain conditions like higher fees and specific instruments etc but now it has chosen to remove any such leverage and has decided to switch to lower leverage in order to make trading ‘safer’ on its platform.
FTX has justified this move saying that the trades that happen on its platform with higher leverage are less than 1% of the total volume at the exchange and that the average leverage used at the exchange is only around 2x which is a bit of a surprise considering that it is home to a very large number of retail traders who are likely to prefer higher leverage for their trades.
The company believes that the entire industry is likely to move towards lower leverage in the coming months as this would make the trading ecosystem much safer for traders, less liquidations and also put less strain on the margin handling that the exchanges would need to do. FTX has also said that it would be introducing more apps and features in the coming months.
FTX had recently raised close to a billion dollars in what was seen as the highest equity raise in the crypto industry so far. It has been expanding its business globally and has also been expanding its business outside the exchange ecosystem. It has been planning to enter into the payments industry and recently also seems to be expanding into the NFT ecosystem to make full use of the currency craze in the crypto ecosystem.
By moving to reduce the leverage used on trades, FTX hopes to be the first mover as other exchanges may also start following suit in due course of time. As institutions enter into the crypto space, they are likely to be very averse to large volatility and even bigger liquidations. They are likely to favor more stable conditions and prices which would mean that the leverage that each trader has, needs to be controlled. Large leverages tend to lead to risky trades which are likely to keep the market very volatile. In order to slow down the market, controlling the leverage would be key. Though large leverages are given in the FX market, it is much bigger than crypto at this point in time and so the retail trading in the FX space doesn’t affect the overall ecosystem too much.
