Crypto exchanges in Canada should stop offering leverage trading. This is according to new guidelines from the Canadian Securities Administrators (CSA).
In addition to trading cryptocurrencies’ on the spot’(spot trading), it is also possible to trade with leverage. This allows you to trade with a small stake for a much higher amount. With platforms that offer leverage trading, you can choose to invest with leverage of up to 100x. but how does that work?
Suppose you want to bet 10 euros on Bitcoin, you can make 1000 euros if you use a leverage of 100x. If the rate then goes up 1%, you stand 10 euros in the profit instead of 0.10 cents.
There are advantages to this, because you can earn more money with a small investment, but there is also the downside. When the price drops by 1%, it means that your investment will also go down by 100x. A drop of 100% means that you have 0% left, so your position will be liquidated and you will lose all your money.
“Following recent events in the crypto market, the CSA is strengthening its approach to the oversight of crypto trading platforms by expanding existing requirements for platforms operating in Canada,” the CSA said. Thus, leverage in cryptos will be banned for all Canadian-based traders.
CSA regulators also warned crypto exchanges not to offer crypto that could be considered a security. On the one hand, this is a vague description, since Ripple, for example, is still involved in a lawsuit with the US Securities and Exchange commission about whether XRP is a security or not.
The regulator also says that stablecoins can be a security. “The CSA believes that stablecoins, or stablecoin arrangements, may form Securities and/or derivatives,” the group said. So this can cause a lot of problems in the crypto market, but what the consequences of this can be is not yet certain. It is unclear exactly when these rules will come into effect.
Singapore and the Netherlands
Singapore, which is currently a haven for crypto start-ups in Asia, is considering a similar move for retail investors. The idea behind this is to protect consumers from themselves.