The Financial Services Agency of Japan, the country’s financial watchdog, plans to cut the permitted leverage cap in cryptocurrency margin trading.
If the plan goes through, the new leverage limit would be 2x from the current self-imposed cap of 4x, Japan Times reported Saturday, citing “informed sources.”
The FSA has reportedly proposed the move due to the volatility of the cryptocurrency markets and regulations in Europe and the U.S. The plan also follows discussions with the Japan Virtual Currency Exchange Association, the country's self-regulatory authority.
Margin trading allows trading instruments using borrowed funds. It can help multiply profits, but can also lead to multiplied losses. Some exchanges, such as Binance, offer leverage of up to 125x.
Japan’s proposed rule, if passed, will be included in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act expected in spring, per the report. Accordingly, cryptocurrency exchanges will have to revise their offerings.