Cryptocurrency and Bitcoin exchanges in Japan are about to experience significant margin trading restrictions this coming Spring.
The Financial Services Agency (FSA), finance regulator of Japan, plans to limit the crypto margin leverage to two times the total deposits of the traders.
For most traders, margin trading is among the cryptocurrency markets’ popular features over the previous years. This feature allows every trader to trade volatile assets such as BTC as high as 125x on several platforms.
However, as the Japanese government plans to counter the cryptocurrency volatility, many speculators wonder whether this event impacts the crypto market.
FSA Plans to Limit the Crypto Margin Trading, Goodbye for 100x?
On the newspaper Japanese Times’ report, Japan FSA is currently planning to limit the margin trading maximum leverage to the traders to 2x. This leverage will allow the traders to increase their trading capital without risking the personal funds’ sizeable amount.
In the case that traders will trade worth $100 BTC and open 100x leveraged positions, they’ll end up trading BTC worth $10,000. As a result, they can be exposed to a huge upside. However, high amounts of leverage will only lead to close liquidation prices to entry prices. In short, small price fluctuations are equivalent to traders’ losing of all funds being used to open the position.
Meanwhile, Japan Times’ news article added that “The new rule will be included in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act which will go into force in Spring.”
Is It Worthwhile to Trade?
Because of the huge chances of wins or losses, margin trading may involve larger market moves. That is specifically when a larger number of investors get involved in the practice. This action of the Japanese government caused some controversies to some people involved in the crypto market, which attributes to the crypto price-performance manipulation.
In October 2019, data showed that an open interest to margin trading was high in Japan. The country aimed to bring crypto-friendly jurisdiction, close monitoring exchanges, and permissive regulation. Besides, authorities have expressed the lack of demand for the central bank digital currency amongst consumers.
It is essential to note that large numbers of countries have already utilized this kind of financial instrument, though a large amount of the trading volume of the crypto market is based on the active investors tapping into the margin. So, a number of investors extra effort to find ways of bypassing the trading restrictions.
Many platforms do not adhere to regulations for BTC margin trading along with significant leverage. As a result, that kind of regulation was banned in different countries like the U.S.
On the other hand, traders attempt to bypass these bans through Virtual Private Networks. That way, they can create trading accounts that can help them appear like a country with no cryptocurrency margin trading restrictions.
The new Japan FSA’s new regulation may have a great impact to the traders, but they can opt for using VPNs for accessing platforms that can offer up to 125x leverage.