Coinbase International Exchange Introduces Leverage Cap for Perpetual Futures Trading

Coinbase International is not accessible to customers in the United States.

Coinbase International Exchange limits perpetual futures leverage to 10x.

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Coinbase International Exchange, the international division of Coinbase, one of the leading cryptocurrency exchanges in the United States, has implemented a new limit on trading leverage for its perpetual futures products. In an announcement made on December 28th, Coinbase revealed that trading leverage will now be capped at 10x for popular perpetual futures contracts such as Bitcoin (BTC), Cardano (ADA), Ether (ETH), Litecoin (LTC), Solana’s SOL, XRP, and more.

Understanding the Leverage Cap

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The new leverage cap means that traders using Coinbase International Exchange can no longer exceed 10x leverage on their trades. Additionally, these traders will be restricted to maintaining a notional value of $90,000 across all their perpetual contracts.

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For those unfamiliar with leverage trading, it allows traders to multiply their potential profits (or losses) by borrowing additional funds to open larger positions. For example, at 10x leverage, a trader can trade with 10 times their initial investment. While this can lead to substantial gains, it also comes with higher risks.

Coinbase’s decision to implement this leverage cap is likely influenced by several factors, including order book depth, trading volumes, stress testing results, and ensuring the balance of systemic risks associated with higher leverage trading. The exchange aims to provide customers with the advantages of leverage while also considering the overall safety of the trading environment.

Impact on Traders

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Traders who have been using leverage trading on Coinbase will need to adjust their strategies to accommodate the new cap. Although traders can continue to transact after reaching the 10x leverage limit, they will be required to adhere to default initial margin (DIM) requirements for their accounts. The DIM ranges from 20% (corresponding to 5x leverage) to 40% (corresponding to 2.5x leverage) for Coinbase International perpetuals, depending on the digital assets being traded.

This change may have varying effects on different traders. Those who heavily rely on high leverage may need to reconsider their trading approach, while others who prioritize risk management and avoid excessive leverage will likely experience minimal impact.

Coinbase International Exchange Background

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Coinbase International Exchange, operating under a class F license from the Bermuda Monetary Authority, was launched on September 28th, allowing non-U.S. customers in select countries to engage in perpetual futures trading. Before accessing Coinbase International Exchange, customers must go through an eligibility evaluation process to open a Coinbase Advanced trading account.

The launch of Coinbase International Exchange came after Coinbase’s parent company faced regulatory scrutiny from the U.S. Securities and Exchange Commission. Impressed by Bermuda’s regulatory environment, Coinbase established its international presence in the country due to its commitment to transparency, compliance, and cooperation.

Q&A Content

Q: Why did Coinbase International Exchange introduce a leverage cap?

A: Coinbase implemented the leverage cap to balance the advantages of leveraging for customers while also mitigating systemic risks associated with higher leverage trading. The decision was influenced by factors such as order book depth, trading volumes, and stress testing results.

Q: How will the leverage cap affect traders?

A: Traders will now be limited to a maximum leverage of 10x and will need to adhere to specific initial margin requirements set by Coinbase International Exchange. Depending on the digital assets being traded, the initial margin ranges from 20% to 40%. Traders who heavily rely on high leverage will need to adjust their strategies, while those who prioritize risk management will likely experience minimal impact.

Q: Can traders still use leverage after reaching the 10x limit?

A: Yes, traders can continue to use leverage trading after reaching the 10x limit. However, they will be required to maintain the default initial margin requirements specified by Coinbase International Exchange.

Outlook and Recommendations

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Coinbase International Exchange’s introduction of a leverage cap reflects the company’s commitment to ensuring a safer trading environment while still offering attractive opportunities for traders. By placing limits on leverage, the exchange aims to strike a balance between providing access to leverage and safeguarding against undue risks.

As the cryptocurrency market continues to mature, we may see more exchanges following similar steps to address the risks associated with high leverage trading. Traders should consider adjusting their strategies to adapt to these evolving market conditions and prioritize risk management.

References

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Share Your Thoughts!

What do you think about Coinbase International Exchange’s decision to cap leverage for perpetual futures trading? How do you believe this will impact the overall cryptocurrency market? Share your thoughts in the comments below and let’s start a discussion!

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