Huobi Reportedly Slashes Maximum Leverage Following China Regulatory Crackdown
Huobi, one of China’s most popular Bitcoin exchanges, reportedly restricted the leverage of existing users to less than 5x after stopping new users in China from using derivatives.
Chinese journalist Colin Wu reported on Twitter Thursday.
Due to concerns about regulatory policies, China’s largest exchange Huobi recently restricted the leverage of existing users to less than 5x after stopping new users in China from using derivatives. The previous maximum was 125x
Leverage and its Effects
Leverage allows traders to borrow huge sums of money and add them onto a position, which can increase profits. However, a slight move against them can result in a margin liquidation (the loan must be paid off or more collateral must be added before the trader’s balance goes into the negative).
The availability of high amounts of leverage (often up to 125x) on various popular exchanges is a useful tool for traders, but it can quickly devolve into a curse for the untrained entrant.
With leverage that high, a tiny move results in a trader’s entire account being blown up – leverage levels of 50x or 100x are not dissimilar to gambling if not used with discretionary precision. Exchange regulatory bodies across the world seek to minimize retail investors from taking on large or unnecessary risks, and remaining in line with these potential laws might be a part of the rationale behind Huobi’s move.
