- Coinbase has deactivated its margin trading from Wednesday.
- One of the reasons for this restriction is revised guidance of CFTC.
- Almost 100,000 users were using Marginal Trading for stock exchange.
Coinbase is one of the safest platforms for the exchange of cryptocurrencies. A few months earlier, Coinbase Pro launched margin trading but due to the new guidelines issued by Commodity Futures Trading Commission (CFTC), it has disabled all the Margin Trading from this Wednesday.
Risks and Rewards Included in Margin Trading
Margin Trading involves higher profits but it also confers a greater risk. It allows the investor to use borrowed money to purchase stock. Interestingly, the main benefit it offers is increasing the purchasing power and financial leverage of the investor. It appears to be ‘all rosy in the garden’ but it is something which involves a high risk of losses as well. Even at times, the broker may release a margin call which can result in terminating one’s share in the stock. Margin Trading is a good idea to buy the stocks which you cannot afford but it also makes the investor suffer huge losses if the profit earned is not higher than the margin.It not only multiplies the gains but also the losses.
Is CoinBase Cutting All Margins Due to In-Exchange Conflicts?
The San-Francisco headquartered exchange planned on 24 November to terminate Margin Trading from 25 November 2020. Thus, the users won’t be able to buy new stocks through margin trade, the existing margin stocks will expire soon in the upcoming days resulting in the end of margin trade. According to a new blog post issued on the official blog site of Coinbase, following the recent guidance of Commodity Futures Trading Commission (CFTC), the exchange is disabling their marginal trading feature. They added, the product will be deactivated in December 2020, when all the existing marginal positions get expired. This blog was posted by Paul Grewal, the Chief Legal Officer of the exchange.
Although Coinbase didn’t make Margin Trading open for all, limited users of Coinbase Pro were allowed to use the product. Thus, the exchange didn’t make any confirmation regarding which revised guidelines of CTFC led to the conclusion of end all margin trading, it is difficult to say whether all the US based Exchanges will put an end to all margin trading or not.