Japan’s FSA May Impose Margin Trading Limits on Cryptocurrency Exchanges

Coming Spring, cryptocurrency exchanges facilitating Bitcoin (BTC) and other altcoin trading may face considerable constraints on margin trading.

According to the English new outlet Japan Times, the Financial Services Agency (FSA), Japan’s regulator, intends to restrict leverage on margin to 2x the deposit held in a trader’s account.

Notably, local cryptocurrency exchanges in Japan had constrained itself to a leverage limit of 4x on traders deposits on the basis of a recommendation made last year by a self-regulatory body. As per the FSA sources, the rationale is to shield against durations of volatility on cryptocurrency markets.

On the timeframe for implementation, Japan Times added:

“The new rule will be included in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act which will go into force in spring.”

There is no clarity as to when the limitations will take effect. Margin trading can significantly increase price volatility and also risk when a large number of traders enter the fray almost at the same time to take advantage of news or any other market related development. Many believe that margin trading promotes price rigging indirectly and affects performance of cryptocurrency market.

In Japan, a survey data indicated that open interest in margin trading reached an all-time high in October.

Notably, cryptocurrency exchange Coincheck has decided to end margin trading facility totally in March 2020. Japan has turned out to become a crypto friendly jurisdiction, with cryptocurrency exchanges being monitored closely. In the same period, authorities have stated that they do not foresee the need for a central bank digital currency (CBDC).