Crypto Exchange Body In Japan Proposes Limit On Margin Trading

News, Regulation | July 26, 2018 By:

Japan’s Virtual Currency Exchange Association (JVCEA), a self-regulatory organization, has proposed a limit on the maximum leverage offered by exchanges for margin trading.

Margin trading is the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker. Margin trading with crypto allows users to leverage their existing cryptocurrency or dollars by borrowing funds to increase their buying power.

Regulated Japanese crypto exchanges, such as Quoinex, bitFlyer, Zaif and Coincheck, provide the trading on margin feature. The highest leverage is available on Quoinex at 1:25. The JVCEA is proposing to limit the amount margin traders can borrow to four times the amount of their investment.

The self-regulatory organization said the goal is to protect domestic investors because there are currently no market rules governing the upper limit of how much crypto investors can borrow in margin trading. The JVCEA is also considering allowing exceptions if exchanges meet certain conditions, such as implementing automatic stop-loss mechanisms. The proposed plan would take effect after a one-year grace period.

The JVCEA was formed earlier this year following the Coincheck hack. It is made up of 16 crypto exchanges that are currently registered with Japan’s Financial Services Agency (FSA). Last month, two vice chairmen of the JVCEA, Bitflyer CEO Yuzo Kano and Bitbank CEO Hiroyuki Noriyuki, left the association after their exchanges received business improvement orders from the FSA.