Japan's Financial Services Agency: Proposes to reduce leverage on crypto margin trading to less than double, or implement this spring

According to Cointelegraph, Japan's financial regulator, the Japan Financial Services Agency (FSA), has proposed reducing the leverage limit on cryptocurrency margin trading from 4x to 2x.


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On January 14, the Japanese Financial Services Agency announced the proposal in a Cabinet Office Decree (a legal document issued by the Japanese Cabinet Office).

If passed, this would be the first time the Japanese government has overseen the leverage ratio of cryptocurrency margin trading. According to Nikkei, Japan has not previously formulated similar rules.

According to reports, the Japanese Financial Services Agency plans to put the order into effect after the revised version of the Financial Instruments and Transaction Law comes into effect in April. In response to the proposal, the Financial Services Authority accepted public suggestions and comments by February 13.

Margin trading allows traders to use borrowed funds to increase potential returns. This is a high-risk investment because its losses may exceed the initial investment amount of the trader.

The Nikkei said the Financial Services Agency aims to protect investors from "risks of loss from excessive speculation and volatility."

Some people believe that clear margin trading regulations are imminent, as 80% of crypto trading is derivatives trading. According to data from the Japan Virtual Currency Trading Association, the official self-regulatory organization of the Japanese crypto industry, from April 2017 to March 2018, the volume of leveraged trading, margin and futures transactions in the crypto industry was much higher than that of spot transactions.

Last year, the Japan Virtual Currency Trading Association imposed a 4x ceiling on leverage, causing some cryptocurrency exchanges in the country (such as Coincheck) to reduce leverage. However, some economic experts have suggested that the ratio should be further reduced to 2 times in order to be the same as leverage in other countries such as the European Union.