Key Takeaways
Clients will have to lower their trading leverage from 100x to 20x
FTX would be joining Binance on the move to lower maximum leverage.
Announcing through Twitter, Sam Bankman-Fried, the CEO of FTX, claims that the inclusion was an effort to facilitate trading responsibly.
Traders available on the FTX platform will move on to reducing their maximum exchange leverage from 100x to 20x.
Comforting customers' fears, Bankman-Fried insisted that the move wasn't initiated to affect customers negatively; rather, it would be changing their perspective towards trading while estimating that the average open margin position in FTX is approximately 2x leveraged.
According to him, the change would affect only a small fraction of the platform, and despite many users expressing their like for it, only a few have started using it.
What changes will this bring?
Often referred to as margin trading, leverage allows traders to increase their positions without funds. For example, at 100x leverage, a trader can convert a $ 100 bet to a $ 10,000 bet without needing the full $ 10,000.
The higher the leverage, the higher the value of any trade you can take. Therefore, high leverage can also lead to high capital losses. High-leverage trading has long been considered risky, and regulators in some countries limit the amount of leverage an exchange can offer.
The decision by FTX's CEO to lower leverage comes shortly after another crypto space began to lower its leverage limits.
Bankman-Fried had made his intentions known through series of tweets but didn't happen until Changpeng Zhao, Binance CEO, announced the reduction of maximum leverage for exchanges on Binance. This new move will limit new users to only 20x of maximum leverage.
Although both platforms have initiated the reduction move, they glaringly are for different reasons. According to Zhao, the move by Binance is endorsed by the platform's desire to initiate better customer protection.
Will other platforms replicate the same measure as FTX?
