Binance To Limit Existing Users to 20x Leveraged Trading Limits In Waves

Limits to leveraged trading will send ripples across the crypto sphere and hopefully create a less volatile atmosphere.

Chung Yee
July 28, 2021
BSC News

Leverage Limits

Binance announced that Binance Futures has limited new users to a maximum of 20x leverage and will soon apply this to existing users. The world’s largest crypto exchange is increasing its self-policing policies by implementing internal controls in its futures platform. 

First, this leverage restriction applies to new users but will be progressively extended to existing users. The CEO of Binance, Changpeng Zhao (CZ), announced on Sunday, July 25, that this restriction has been in place since July 19, 2021. 

CZ cited the need for consumer protection and used the tweet to acknowledge that high leverage trading is risky and must be controlled. 

This new restriction will apply to users with registered Binance Futures accounts of less than 30 days old. These accounts will be restricted from entering into leveraged positions exceeding 20x. Users will enjoy increased leverage limits gradually after one month from registration. 

Source : The derivative market is more volatile partly because of leveraged services by trading platforms

In October, 2019 Binance futures platform increased the maximum leverage and margin on the Bitcoin/Tether pairing contracts to 125x. The decision from CZ and team is meant to cater for institutional consumers with professional traders.  

Encouraging Responsible Trading

Binance, in efforts to meet regulatory standards, is starting to incorporate policies and procedures which are focussed consumer-centric. The recent regulatory clampdowns on Binance has adversely affected the leading crypto exchange platform. 

It is now focussed on meeting regulatory standards and has limited its range of products and services to a more conservative one. The recent decision to stop stock token offering is one of the steps taken by Binance to position itself favourably to regulators around the world.  

Other crypto exchanges are taking steps to impose restrictions that safeguard the interest of its users by reducing risk exposure. Sam Bankman-Fried announced on July 25 that FTX will be limiting leverage trading to 20x to encourage responsible trading. 

Source: On June 3, 2021 Binance, in its blog, has taken steps to educate its users on responsible trading 

Binance has also been educating its users to implement responsible practices in trading, such as exercising self-discipline and using the cooling-off period function available on its futures trading interface. The approach by Binance is targeted at novice traders, which is the most susceptible group to excessive risk-taking. 

Moving Forward

Exchanges are taking preventive steps to stave off regulatory backlash. One of the major concerns is the excessive risk involved with leverage trading. This concern is amplified when the facility is offered to regular retail traders. 

Futures platform allows for the user to take a position in respect of an underlying asset. The leveraged position allows the user to take a riskier position by betting on a particular price movement without actually purchasing the asset. 

Source: Binance offers leveraged tokens that provide investment opportunities to traders without excessive risks

The unsophisticated trader is vulnerable to the risk of liquidation if the price moves in the opposite direction. In some platforms, controls are set to limit leverage facilities to only sophisticated investors. Others choose not to offer leverage services to their customers. The limit of 20x is still risky for a volatile asset class and may not be a suitable product provided to the average trader. 

Binance can accredit its users and only allows a particular category of users to be eligible for higher leverage. Less risky products such as leveraged tokens––which Binance offers–can be viable alternatives that are less risky and provide investment opportunities. Leveraged tokens are not subject to liquidation, unlike the traditional leveraged positions

Self Policing 

Exchanges such as Binance have to put in place policies that encourage education and risk mitigation. It is more than just meeting regulatory standards. It also helps in building a more sustainable and reliable crypto market. More controls will likely be implemented in the future by significant exchanges to avoid risking its license to operate.

Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance. His largest crypto holdings are Solana, Ethereum, and BNB Token.

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