FTX moves to curb highest-risk trades in cryptocurrency

By Ephrat Livni and Eric Lipton

A popular cryptocurrency exchange announced Sunday that it was curbing a type of high-risk trading that has been blamed in part for sharp fluctuations in the value of Bitcoin and the casinolike atmosphere on such platforms globally.

The move by the exchange, FTX, would reduce the size of the bets that investors can make by lowering the amount of leverage it offers to 20 times from 101 times. Leverage multiplies the traders’ chance for not only profit, but also loss.


“We’re going to be the ones to take the first step here,” Sam Bankman-Fried, 29, the billionaire founder of the platform, which operates from Hong Kong, said on Twitter on Sunday. “Today, we’re removing high leverage from FTX. The greatest allowable will be 20x.”

The announcement came after The New York Times, in an article published online Friday, detailed the risky trades offered on FTX and other global exchanges such as Binance and BitMEX that accelerated a global crash in May. That month, more than $20 billion worth of those bets were liquidated on cryptocurrency exchanges worldwide.

Bankman-Fried said lowering the leverage amounted to “a step in the direction the industry is headed, and has been headed for a while,” adding that high leverage is not an important part of the crypto ecosystem, “and in some cases it’s not a healthy part of it.”

Global platforms such as FTX allow traders to borrow big when betting on price fluctuations — traders do not buy and sell cryptocurrencies but instead predict where prices in the underlying assets will head. Those bets, known as derivatives, mean that if investors put up $1,000, the exchange extends them credit to allow them to make a bet on the future price of cryptocurrency worth as much as $101,000 on FTX. Now, with the new cap, the maximum in that transaction would be $20,000.

This type of transaction is not supposed to be available to nonprofessional investors in the United States, but — at least historically — some of those investors used workarounds to trade on the sites.

Leverage leaves investors much more vulnerable to having their accounts liquidated as a result of an automated margin call if the price of cryptocurrency moves against their prediction, and they do not have enough collateral in their accounts to back up their bets.