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Japan To Regulate Crypto Margin Trading

Judging from the continuous roll out of crypto regulations in Japan, it is evident that the country is taking crypto seriously and it is doing all it can to protect its citizens. While most of its recent reforms are geared to ensure that the country remains in control of the exchange market in the country, it is, however, futile to argue that these regulations will do more harm than good.

Here, we will take a look at Japan’s latest legislation on margin trading and what this means for the crypto market. But first, let us do a quick recap on the country’s history with crypto regulations.

Japan Regulatory On Full Throttle

Japan is one of the countries dominating the crypto space. Needless to say, the explosive growth of the country’s crypto community is a result of the mass exodus of China’s crypto firm to other territories after the latter imposed a blanket ban on crypto. In particular, the crypto exchange market in this region experienced a boom and without clearly defined regulations, it was only a matter of time before nefarious individuals started exploiting its frailties.

As expected, we began to witness a series of crypto scandals and at the height of this decadence, Japan’s regulators took the bold step to introduce strict rules that would govern the market. With each security deficiencies registered were stricter remodeling of these rules and by the end of 2018, Japan had created an in-depth and uncompromising regulation for crypto exchanges. In addition to this, regulators introduced a rigorous registration process for exchanges that would do enough to ensure that only competent exchanges had access to its crypto community.

It would seem that regulators are not relenting in their efforts and the latest regulation of margin trading in the country would once more disrupt the crypto exchange market.

Why Is Japan Particular About Margin Trading?

Crypto trading, in general, involves risks, regardless of the strategy or style adopted. However, when it comes to risk levels, margin trading ranks as the riskiest. It basically involves using the fund you do not own to trade. While losing in conventional crypto trading would only cost your trading capital, margin trading, on the other hand, would put you in debt, depending on how much you borrowed.

Margin trading amplifies the trading power of traders and adversely, it also ups the risks of losing everything and more. it is not surprising that crypto exchanges are striving to offer margin trading features as traders continue to employ different strategies to capitalize on opportunities and make quick money. Perhaps, it is this surge in margin trading activities and casualties that have informed regulators of the risk of its continuous growth.

As such, it is not surprising that regulators are working on implementing various tools that will curb the excesses of this trading practice. The goal here is to protect customers from the tempting impulse to go overboard when margin trading. In addition to this, putting crypto margin trading in the spotlight would ensure that exchanges employ the best practices while offering related services.

Already, regulators in Canada have chosen to temporarily ban such trading activities within its borders and Japan has responded to the surge of crypto margin trading by exploring ways to minimize the risks involved.

What Are The Details Of Japan Crypto Margin Trading Regulation?

Reports reveal that Japan has moved to enforce a standard cap on margin trading. With the new regulation, crypto exchanges can only offer two to four times of each trader’s deposit for margin trading. Secondly, the regulation requires that exchanges offering margin trading services must register with regulators. Both requirements would tighten the regulator’s grip on the burgeoning exchange market.

Apart from this, this approach will spur exchanges to implement effective mechanisms to manage the lending process as well as tools for stopping traders from losing more than they can pay back. To an extent, this would go a long way of assuring traders that they are a part of a regulated market.

Will This Frustrate The Growth Of Crypto Margin Trading In Japan?

On paper, this move would curtail the explosive and unregulated crypto exchange market in Japan. However, a closer look shows that the latest attempt of regulators to establish a trading standard further validates crypto in this region. With this regulation, traders would have one more reason to try out margin trading since there is a law protecting them from becoming victims of poor margin trading infrastructures.

So, instead of driving traders away, this law would make crypto margin trading more attractive. Also, we have noticed that introducing laws restricting or regulating margin trading has done little to discourage exchanges from offering margin trading services. This is evident with the recent reports that reveal that Binance is on the verge of introducing crypto margin trading as one of its services. Considering the fact that Binance is a popular trading platform, particularly for inexperienced traders, then, we can conclude that Japan’s margin trading regulation is an ideal fail-safe for such level of exposure.

Bottom Line

Japan is one of those countries that have taken the pain to introduce and enforce crypto regulations, particularly for crypto exchanges. Although its efforts might not come across as an exchange-friendly one, yet, it goes a long way to outline the requirements for running a legal crypto business.  

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