Top crypto assets exchange, FTX has declared its plans to curb the leverage limit from 100X to 20X in a hard attempt to control high-risk trading. The announcement was made via a series of tweets by the founder and CEO of FTX, Sam Bankman-Fried, explaining the reason and purpose behind the decision.
By cutting down the leverage limit, the exchange aims to cut down losses by margin traders by allowing lower limits. In the Twitter thread, the CEO explained that while he does not believe that a higher leverage limit is the cause of volatility in the currencies, FTX should be the first to take this step.
Bankman-Fried explains that through this move, the exchange wants to encourage responsible trading and that these restrictions might only impact at most 1% of the trading volume. He explained in one of his tweets:
“At FTX, way less than a percent of volume comes from margin calls. This contrasts with a few platforms which are sometimes > 5%, and some which removed data because it looked bad.”
The company’s trading volume within 24 hours recorded a total of $876 billion, making it the fourth-busiest crypto exchange in the world.
High levels of margin trading are believed to cause volatility in the market. It propels violent price swings in the crypto market, causing many to liquidate their transactions.
The move may also come from lawmakers calling for stringent regulations around the crypto-sphere. Regulatory authorities like the Securities and Exchange Commission are looking for ways to curb unethical trading and are predicted to furnish regulations on the market.
This action by FTX may have come in the form of showing trust and responsibility to the regulators in an attempt to avoid becoming the target of regulators.