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Cryptocurrency

Japan cryptocurrency industry moves to cap margin trading

Proposed 4-to-1 limit would shield investors from wild price swings

Like other cryptocurrencies, Bitcoin is prone to sharp price swings, fluctuating as much as 10% in a single day.   © Reuters

TOKYO -- The self-regulatory body for Japan's cryptocurrency exchanges is firming up plans to set a 4-to-1 leverage limit on margin trading, aiming to reduce the risk of massive losses given the volatility of these assets.

The Japan Virtual Currency Exchange Association will include in its proposed rules an across-the-board cap on the extent to which traders can use borrowed funds to magnify gains and losses. The measure would take effect after a one-year grace period. The organization is considering allowing exceptions if exchanges meet certain conditions, such as implementing automatic stop-loss mechanisms.

Japan currently lacks limits on cryptocurrency margin trading. Some exchanges permit leverage of up to 25 times the deposit, citing regulations setting that as the ceiling for foreign exchange trading. At that degree of leverage, a 4% price drop would wipe out a trader's entire deposit.

But cryptocurrencies are far more volatile than normal currencies. Bitcoin surged as much as twentyfold in 2017 before falling to roughly a third of its peak about six months later. It can swing as much as 10% in a day. Some highly leveraged cryptocurrency investors in Japan have suffered heavy losses, spurring criticism from consumer protection groups.

The self-regulatory body's draft rules also include bans on insider trading and dealing in cryptocurrencies suspected to be used in money laundering.

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