- The FSA in Japan is considering leveraging lower margin trading caps for cryptocurrency
- The proposed rate by experts is between 2 and 5 while some exchanges trade at 25
- This move is meant to reduce the risks involved in trading
Yesterday news broke that Japan’s Financial Services Agency (FSA) gave to cryptocurrency industry self-regulatory status.
This move meant that the Japan Virtual Currency Exchange Association was free to moderate and control the industry as it saw fit. This decision was met with excitement from many in the industry as it meant that they would not face the types of limitations faced by their counterparts in other countries like China and South Korea.
Now it would seem that the government intends to leverage caps for margin trading of cryptocurrencies. This is a move to curb speculative trading and also reduce the risks involved in trading.
How this will work
While the FSA has given the industry self-governing status, it does have a foot in the industry in that market operators are required to register with the FSA but no sanctions are put in place by them.
In terms of putting a cap on trading, most exchanges do so at their own discretion, with some capping at 25 times due to foreign exchange margin trading.
According to some experts, the cap ought to be between 2 and 5 times.
Any sanction or cap on margin trading would have a huge ripple effect as over 80% of the 2017 Japan’s 69 trillion yen ($613 billion) in cryptocurrency transactions were conducted through margin trading. These figures come courtesy of the Japan Virtual Currency Exchange Association.
Also, 7 of the 16 FSA-registered operators provide margin-trading platforms.
The argument of where the cap for cryptocurrency margin trading should be is a tricky one because of its volatile nature. Giving a currency a very high cap means that deposits could be easily lost in the event of a small decline in the currencies market value.
This comes following the theft of Bitcoin from CoinCheck earlier this year where the FSA received dozens of complaints.
A margin cap could lead to less chance of losses for investors as trading at a cap of up to 25 could mean that an entire investment could be lost due to slight shift in the market.
A panel consisting of the FSA and other players in the industry are discussing the matter, however.
