The exchange will act as partner for launching the financial institution’s Silvergate Exchange Network (SEN) Leverage service.
During the trial phase, the exchange will only provide leveraged trading to chosen institutional clients. The only collateral presently accepted by the trading facility provider is Bitcoin, which will be held by Bitstamp as exchange partner of Silvergate Bank.
Initiatives taken by Silvergate bank to be supportive to crypto related business are paying off as evinced by this partnership. Last August, Gemini, the cryptocurrency exchange established by Winklevoss twins, stated that it became a member of Silvergate’s SEN network to provide 24/7 fiat remittance.
As per a filing with the US SEC (Securities and Exchange Commission) in March 2019, Silvergate Bank provided its service to 542 customers involved in cryptocurrency related business, including miners, exchanges, investors, custodians, etc.
Leveraged trading enables traders to trade higher volumes on borrowed funds, thereby giving an opportunity to realize higher returns. However, leverage trading is a double edged sword as losses could also be much higher leading to negative balance. Almost all exchanges advise beginner traders not to get involved in leveraged trading.
Japanese regulators are having a close watch on leveraged trading. In this regard, the Japanese Financial Services Agency (FSA) has suggested minimizing the leverage to 2x of capital from the current level of 4x.
The regulator supposedly intends to implement the plan in April. By offering lower leverage, FSA believes that it can safeguard investors interests from “an excessive amount of speculation and the risk of loss due to volatility”.