Margin trading is using leverage for better performance and higher gains.
But because the market is so volatile now, most exchanges think the best option is to disable it. This was sometimes the case with FX trading companies as well, but they were mostly forced by their regulators to tone down margin trading a bit. For example, in the EU, the regulator brought the maximum leverage of CFDs down to just 1:30 when it used to be 1:1000 in some cases.
So it comes as no surprise that the chief legal officer of Coinbase blog, Paul Grewal announces the disabling of the platform from tomorrow. The exchange was following the directions from Commodity Futures Trading Commission. The announcement came in on Tuesday stating that merging trading on the Coinbase platform will be disabled.
Grewal reported that no new margin trades will be allowed from today November 25 and that purchases that were already made by clients before this will be allowed. Because of this decision, the company reps say that the product will be taken offline from December after the expiration of existing margins.
According to Grewal, it is only necessary for them to take this action in order to protect clients, especially those in the US who are experiencing a lot of losses, so they could have some peace of mind. Their aim is closely working together with the regulatory authorities to achieve the much-needed protection of users.
These actions are taken by the company due to instructions from the CFTC. This all started in March when the regulatory body stated that they would like cryptos to be included in the actual delivery of assets which were bought through other trading methods or through leverage. Buyers were allowed to buy assets during that period pending a 28-day deadline.
Through margin trading, a lot of investors in the stock market can buy more stocks than they can actually afford. It is also known as intraday trading and one of the best methods through which individuals can learn how to start trading without money and it has proven very effective over the years and is highly recommended for new traders who are not ready to risk their finances yet.
Traders bet on the future prices of the assets they are trading in when they trade futures on the market. If these futures are held by them for a long period of time to settlement, they will physically receive the underlying assets which are directly sent to them. The CFTC guideline was not of this opinion, however, as they clarified that traders dealing in tokens and those that act as facilitators will have any form of control over the use of crypto for margin trading especially when it has been delivered to the trader, and this also includes Coinbase.
Experts say that this may reduce the current price changes, although the effects on the markets are still vastly unknown.
There has also been the problem of reporting crypto activity with 1099-k, and Coinbase stated that they won’t be using the platform anymore. Coinbase made this announcement about disabling margin trading just after they had said that they won’t be using the 1099-k to report user-activity to the IRS.
What you need to know
Earlier this week, the IRS had sent out notices to several investors stating that they are not reporting their real income. But the truth of the matter is that they came to this conclusion using the 1099-K platform which reports a trader’s total trading activities including records on losses which contradicted the real amount filed in by the individuals as a tax return. The system misled the IRS to believe that investors were evading taxes, meanwhile, this is not the case. Many traders are trying to sort this out for themselves too.
Coinbase users who had annual transactions of $20,000 in volume with over 200 transactions but didn’t include accurate reporting for fair market value and cost of any crypto investment could use the tax form. But since the IRS was facing issues calculating the real returns of investors through this tax form, they switched to another platform. Coinbase announced its use of 1099-MISC for the report of tax information instead of 1099-K.