“Customers currently using margin trading will not be able to place new margin trades starting 2pm PT on November 25,” the company said, adding that this product will be taken offline in December once all existing margin positions have expired.
“We believe clear, common-sense regulations for margin lending products are needed to protect and provide peace of mind to US customers,” Paul Grewal, Chief Legal Officer of Coinbase, said.
Margin trading, also known as leveraged trading, refers to borrowing funds so that you can take a larger position than you would be able to with your existing funds so that you can potentially generate a higher profit.
For example, if you want to go long bitcoin (BTC) with a leverage ratio of 2:1, you could use USD 1,000 of capital and borrow funds so that your potential returns would be doubled. If the price of bitcoin then moves from USD 10,000 to USD 12,000, your return would not be 20% but 40%, which would equate to USD 400 instead of USD 200, in this example, minus the daily borrowing fee.
However, while margin trading enables traders to amplify their returns, it can also lead to increased losses, which is why experienced traders tend to advise newcomers to stay away from leveraged trading.
As reported, in March, the CFTC published its final guidance on actual delivery for digital assets. It stated that “actual delivery” happens when:
- a customer has complete control over the asset and the one offering that asset no longer has any control over it by the end of 28 days after the transaction
- the offeror and counterparty seller don’t retain any interest in, legal right, or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction.
Trading volume on Coinbase Pro: