FTX and Binance will curb highly leveraged cryptocurrency trading, a practice that can vastly multiply losses; FTX offered 101x leverage, now down to 20x
The moves would reduce the size of the bets that investors can make by drastically cutting the maximum leverage offered.
New York Times
Context & Ripple Effects
Related coverage placed FTX and Binance alongside BitMEX as exchanges built around highly leveraged crypto derivatives outside the US. Cutting leverage changes the risk profile of a trading model that had been central to that group’s positioning.
FTX customers’ maximum leverage falls from 101x to 20x, directly reducing the size of positions they can take relative to their collateral.
Binance and FTX both remove part of the extreme-loss exposure associated with their leveraged trading products, while traders seeking the largest bets lose access to those limits on the two platforms.
Second-order effects
BitMEX and other venues identified in prior coverage as high-leverage derivatives exchanges face a sharper product choice: preserve very high limits or compete on tighter risk controls.
For FTX, lower leverage makes automated risk management a more consequential product capability, consistent with its later futures-market proposal.
Third-order effects
The connected coverage points toward crypto derivatives shifting from offshore, maximum-leverage competition toward more controlled and regulated market infrastructure, including FTX’s US-regulated derivatives expansion.
The trend: Crypto exchanges are moving risk controls from a back-office safeguard into a core competitive and regulatory feature of derivatives trading.
9) And so, after lots of back and forth, we're going to be the ones to take the first step here: a step in the direction the industry is headed, and has been headed for a while. Today, we're removing high leverage from FTX. The greatest allowable will be 20x.
It was not too long ago that FTX was trying to out promote its competitors by increasing the available leverage to 101 times. Today it cut that leverage to 20 times. Here is a tweet from when they first increased it to 101 https://twitter.com/...
Trading leverage for consumers should be earned not given. The crowdfunding industry solved that “sophisticated investor” problem a decade ago with a voluntary code If @FTX_Official wanted they could follow a similar model working with industry led codes of conduct
2) We worked hard on our margin system at FTX: allowing users to cross-margin most assets on the platform. It means needing to manage one wallet instead of hundreds; it also means massively fewer liquidations.
Good move by FTX, with a conservative 20x leverage your portfolio will be protected unless there is a blowout move of at least 5% in BTC, an occurrence which happens only once every two days. https://twitter.com/...
FTX has decided to remove all leverage over 20x from their platform. The assumption would be most other platforms will follow suit over time. https://twitter.com/...
8) The average leverage used on FTX is ~2x. And while we think that many of the arguments are high leverage miss the mark, we also don't think it's an important part of the crypto ecosystem, and in some cases it's not a healthy part of it.
6) All of that being said, there's been a bunch of discussion recently around high leverage (> 20x). Nearly every crypto derivatives exchange allows it, and nearly every one will say the same thing: It's a tiny fraction of volume and positions.
MORE NEWS: Binance, the world's largest cryptocurrency exchange, also announced Sunday (after NYT story on risks presented by high-leverage derivatives) that it was lowering the volume. It too will now cap leverage at 20 times, down from 125 times. https://www.nytimes.com/...
This move comes after NYT examination published Friday of these are risk/high leverage derivatives trades and the role they play in cryptocurrency volatility worldwide https://www.nytimes.com/...
NEWS: One of the world's largest cryptocurrency exchanges, FTX, moves on Sunday to curb highest risk cryptocurrency trades. High leverage can bring high profit. But it also can mean losses and volatility. With @el72champs https://www.nytimes.com/...