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 move also foreshadows FTX's later effort to automate risk management for US futures trading and its acquisition of LedgerX to expand US futures and options products. In that arc, leverage policy becomes part of the exchange's risk-management and market-access strategy.
First-order effects
FTX customers who could previously take positions at up to 101x leverage are now capped at 20x, sharply reducing the maximum exposure available on the platform.
Binance and FTX must apply tighter leverage controls to the crypto-derivatives products that had been central to their offshore operations.
Second-order effects
FTX's cap makes risk-management infrastructure a more important competitive capability, consistent with its later plan to automate risk management in US futures trading.
If exchanges pair leverage caps with regulated derivatives expansion, crypto derivatives competition will shift toward risk systems and market access rather than simply the highest leverage offered.
The trend: Crypto exchanges are moving from leverage-led offshore derivatives growth toward risk-controlled products designed to support broader regulated-market ambitions.
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.
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/...
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
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/...
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/...
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/...
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/...
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.
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/...