Binance, the second largest cryptocurrency exchange by adjusted volume is preparing to launch a margin trading system that will make trading volatile digital assets riskier than it already is, reported TheBlock.
Retail customers are a mainstay with the exchange and to further increase their customer count, Binance will allow them to trade on the margin, state sources close to the exchange. This feature will allow investors to trade on borrowed funds and the coin held will be placed as collateral for the issuer, which spikes the risk of the transaction even more.
The report does say that there is no margin trading currently on offer and that no confirmation of a future approval was provided by Binance. However, there were rumors circulating that in order to use the margin feature, users would need to hold the exchange’s native token, Binance Coin [BNB].
Binance’s Application Programming Interface [API] showed a margin trading feature, which was discovered by a programmer on Reddit earlier this week. Given this revelation, cryptocurrency proponents believed that an imminent update would include a margin trading feature.
The programmer stated:
“This change has not been reflected on the documentation. Further analysis of the response revealed that all 482 trading pairs have spot trading enabled and margin trading disabled; which makes sense. However, this API update implies that Binance is considering the implementation of margin trading features.”
Changpeng Zhao, the CEO of Binance, eased the concerns of the community, stating on March 22 that the exchange has not yet scheduled the inclusion of margin trading on their platform and that this was part of a “future proof” for their API.
“We future proof our API framework as part of our system upgrades. No dates.”
Regulators across the world have consistently warned their investors of chiding margin trading as it greatly increases the risk of investing. Furthermore, a volatile underlying asset like digital currencies inflates the risk even more.
A note by the Securities and Exchange Commission [SEC] on the topic stated:
“The downside to using margin is that if the stock price decreases, substantial losses can mount quickly.”
Cryptocurrency exchanges have been ramping up margin trading options for their investors, given its popularity. Notable exchanges like Kraken, Bitfinex, and BitMEX already have this form of arbitrage on offer.
Needless to say, regulatory oversight will increase once an exchange of the size of Binance introduces margin trading.
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