Popular Chinese cryptocurrency exchange Huobi recently announced the decrease of the leverage allocated to its clients from 125x to 5x. The move comes after pressure from the Chinese government against cryptocurrencies, which includes trading and digital mining. For new users, on the other hand, the leverage option is eliminated.
The information was released by the blogger Wu Blockchain in your account on the social network Twitter. In this way, the platform tries to look “less dangerous” for the authorities of the Asian country. Recently, Beijing has run a campaign asserting the priority of “protecting people’s capital.” It should be noted that, for many regulators, cryptocurrency trading is pigeonholed in the category of ‘high risk bets’.
Twitter users’ reactions were immediate to Wu’s information. Some downplay the fact and explain that “no one needs 125x leverage”, as 2x to 5x is more than enough. Despite this, it is striking that cryptocurrency trading is under unprecedented pressure in the People’s Republic of China.
Cryptocurrency exchange Huobi opts for the more rational path
Pressure from Beijing against any digital asset that could compete with its future Digital Yuan is mounting. In that sense, the actions taken by mining companies or cryptocurrency exchanges like Huobi will be crucial to avoid upsetting regulators. The maintenance of its operations within the borders of that nation could depend on that.
In this way, Huobi anticipates what could be failing a biased scrutiny by the authorities, opting for a more rational path. The latter has to do with the real risks that exist when opening operations with very high leverage. For many experienced traders, a leverage of more than 100x allows the profit of large sums of money.
However, for traders new ones, a false play, would lead to the burning of the account or the loss of all your funds. In other words, a high leverage allows the amount of money invested to be multiplied several times when opening a position. All this, depending on whether the trend favors the operator’s bet. Otherwise, if the charts move slightly against you, the loss of all your funds will be almost instantaneous.
Consequently, the fact that some crypto exchanges, of which Huobi has demarcated, offer high leverage, is of great benefit to a select group of expert traders.
Training is vital to manage operations responsibly
Many trading platforms, both cryptocurrencies and other assets, offer guides so that beginners do not fall into these mistakes. While it is true, that the losses of new users are vital to maintain the business of the brokers. They do not like the immediate withdrawal of these, so they develop educational courses that are included in the opening of accounts.
Thus, in many of them, it is recommended to train in demo accounts so that they train and are aware of the risk to which they are exposed. Also, when moving to real money accounts, they are recommended to start with minimal leverage. To the same extent that they have better technical and fundamental analysis skills, they can progressively increase that leverage.
With that training, crypto exchanges like Huobi, Binance, and others ensure that new bettors stay in the game longer.
However, greed and ignorance often do their thing with the inexperienced. By not following the guides and not spending time analyzing the market, but instead operating out of the drive to earn big and fast, they end up disappointed. It is a historical tragedy suffered by the traders since times gone by, when operations were bought with stamped coupons.
It is better to take precautions
Taking into consideration, on the one hand, that the suicidal behavior of traders inexperienced is difficult to correct. As well as, on the other hand, the inclement of the Chinese authorities against everything related to cryptocurrencies, the Huobi exchange has chosen to take precautions.
In nations like China, with a vigilant government of the entire economic life of the people, caution is important. That is why other companies such as Binance chose to leave the country and ensure its growth in a freer way.
For months, all businesses related to digital currencies have been under the scrutiny of the authorities. The case of Bitcoin mining is one of the most striking, considering that more than half of the existing farms in the world operate in that country.
Despite this, regulators have not shaken their pulse. In provinces such as Inner Mongolia and Xinjiang (48% of the world’s farms), miners received a 2-month ultimatum to dismantle their spaces. Beijing’s aggressive move includes crypto exchanges, so Huobi could be on the list despite its leverage adjustment.
Data to take into consideration
- Cryptocurrency exchange Huobi has dismantled the leverage option for new users of its trading platform.
- For existing users, the leverage options have been reduced from their highs of 125x to a cap of 5x.
- Although the company, up to the time of writing, has not commented on the matter, some users have confirmed the change of parameters.
- The measure could be related to the pressure that platforms that operate with digital currencies are subjected to.
- The Chinese authorities carry out a “clean-up” campaign against firms that operate with cryptocurrencies, whether they are mining or trading.
- Many Huobi-like firms could be forced to migrate their headquarters to other regions such as Singapore, Malaysia or Hong Kong.