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- Binance has expanded its Bitcoin futures platform and introduced 125x leverage.
- CEO, Changpeng Zhao explained that although not everyone will like the launch, it was necessary to stay competitive.
Binance, the world’s largest cryptocurrency exchange by (adjusted) trading volume, continues to expand. Having introduced numerous new services in recent months, such as a crypto lending platform, a P2P trading platform and the Bitcoin futures contracts with a twenty-fold leverage, the company recorded its second highest profit in the third quarter of 2019 after the fourth quarter of 2017.
However, Changpeng Zhao aka “CZ” does not seem satisfied with the success of Binance. As Binance announced yesterday, the exchange will increase its Bitcoin Futures contracts to a maximum leverage of 125x for Bitcoin/Tether contracts. The users of the exchange can now choose any leverage between 1x and 125x.
Binance first announced the Bitcoin futures platform in July 2019, initially allowing traders a moderate 20x leverage. By increasing the leverage, Binance is reacting to the strongly increasing competitive situation on the Bitcoin futures market. With BitMEX and BitFlyer, as well as the Wall Street companies Bakkt and the Chicago Mercantile Exchange (CME), Binance has a fierce competition. The crypto exchange BitMEX, which specializes in margin trading, is currently leading the BTC futures market in terms of trading volume.
However, this could change soon. The maximum leverage positions on Binance now exceeds the 125x leverage of the BitMEX Bitcoin futures. Thus CZ could have created a weighty argument for investors to switch from BitMEX to Binance. He said in a statement (freely translated)
We have seen an increase in institutional participation in trading […] And they are flocking to Binance Futures. The market has been demanding a product with superior stability and performance; now we are providing one
Criticism on the high risk of 125:1
Many traders and investors will probably be pleased with Binance’s announcement. Nevertheless, there are also critical voices that consider a leverage of 125x very dangerous in the already very volatile cryptocurrency market. In contrast to the traditional financial markets, the crypto market can experience considerable price fluctuations within a few minutes. A leverage of 125x can therefore have considerable effects.
By using the highest possible leverage, a user can trade 125,000 USDT in BTC with a deposit of 1,000 USDT. Even CZ warned via Twitter that a 125x leverage is not for beginners and at the same time justified the introduction to remain competitive:
Not every feature is for everyone. Some features, while not liked by everyone, are in high demand only for small selected groups. Please don’t use features you don’t like or need. As a platform, we have to provide choices to stay competitive.
Binance also explained that the BTC futures contract offer an integrated protection mechanism in the form of an “insurance fund” that helps traders manage risk.
