• JVCEA proposes a 1:4 cap on margin trading
• This follows the EU placing a 1:2 leverage cap on crypto trading last year
• There are 3.5 million cryptocurrency traders in Japan

The Japan Virtual Currency Exchange Association (JVCEA) has suggested a cap on the amount of leverage that exchanges should offer for margin trading.

The suggested maximum leverage is four times the client’s deposit with that particular exchange for a leverage of 1:4.

The aim of this self-imposed maximum is to protect investors against major losses should cryptocurrency prices fluctuate wildly, something that is quite common in the industry. The JVCEA is also busy developing a set of rules on advertising and insider trading and intends to apply to Japan’s Financial Services Agency (JFSA) for accreditation.

Most forex traders, particularly retail traders, are very fond of margin trading, and this has become the main draw that forex brokers use to attract clients. While margin trading allows traders to trade with much larger amounts than they have in their account, it’s a double-edged sword – borrowing money from the broker could boost one’s profits, but it also exposes the trader to more significant losses.

The larger and more respectable forex brokers offer protection against negative balances to help traders avoid going into negative balances.

Last August, the EU announced a cap of 1:30 on leveraged trading for CFDs and 1:2 in the case of cryptocurrencies. In Japan, the maximum permitted leverage for forex trading is 1:25.

Very few cryptocurrency exchanges offer margin trading. However, some of Japan’s regulated cryptocurrency exchanges do offer margin trading, including bitFlyer, Quoinex, Coincheck and Zaif.

Trading cryptocurrencies is hugely popular in Japan. According to a recent JFSA report, the country had more than 3.5 million crypto traders last year, who generated $97bn in combined trading volume.