According to recent reports, crypto exchanges in Japan are likely going to face some margin of restrictions on margin trading from this year.
The Financial Services Agency (FSA), Japan’s financial regulator, announced that the regulator intends to reduce the margin leverage of exchanges to twice the trader’s total deposit.
A measure to reduce volatility in crypt trading
Before the implementation of this new policy, Japanese brokers were able to have four times the value of their deposit when trading. This means that there was a trading limit of four times the deposit traders have made with the domestic exchange.
It was the precious limit imposed by the industry regulator last year. As at then, FSA said it intends to watch over market volatility and correct the frequent issues unstable nature of the cryptocurrency markets.
Japan Times, the local news agency, stated that it is not yet clear when the restrictions would begin to apply. The news agency reported that there is no confirmation whether the new restrictions will apply immediately after the authorities pass the law.
Margin trading can swing trading wins or losses at a significant level. It can result in a lot of volatility in the market since a little spike in the market can lead to huge gains or losses. It’s even more prevalent when so many investors participate in the practice at the same time.
The impact of this trading method has become a source of concern for some traders and industry regulators. According to some industry experts, the cause of such market behavior is the manipulation of the price performance of cryptocurrencies. In October last year, data revealed that there was an all-time high of open interest in margin trading in Japan. In part, it appears exchanges are forecasting the changes.
Japan looking to build a friendly zone for crypto trading
Japan is one of the Asian countries looking to provide a friendly environment for the growth of cryptocurrency. However, the country’s law enforcement agencies and regulatory bodies are constantly on their toes to watch for any negative development.
They are always monitoring crypto exchanges and fostering permissive regulations to keep the market in check.
Though, the country is not yet ready to establish a central bank digital currency. Japan said there is a relatively low demand for the digital currency. According to the regulators, it’s something it could consider if the economic indices surrounding the introduction of the digital currency are favorable to both the investors and the economy.