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Coinbase To Suspend Margin Trading, Mentions CFTC Guidance

Coinbase, the US-based digital asset exchange is planning to terminate all margin trading effective 25th November, 2020. The exchange has taken the decision in response to recent regulations by the Commodity Futures Trading Commission.

On Tuesday, the San Francisco-based trading platform declared that it would stop users from placing new margin trades starting today at 22:00 UTC, while concurrently stopping any open limit orders.

The exchange will close the margin trading feature completely next month, once standing positions expire. When clients trade on margin, they are advantageously borrowing funds from the exchange or broker in order to cover the cost of an investment in an asset, which can be a security as well as a virtual currency. This permits traders to leverage their positions, thus magnifying profits or losses.

Coinbase pointed to latest fresh recommendations from the CFTC, mentioning the Commission’s March guidance around actual delivery of cryptocurrencies as the rationale behind the decision. Nevertheless, the exchange did not specify which part of the direction resulted in the move.

As per the guidance, the assets obtained through leverage or a margin contract cannot be liquidated. Furthermore, the ultimate guidance accepted in 2020 mentioned that the offeror, seller or affiliated entities cannot have any legal right, interest, or control over the commodity.

Principally, Coinbase would have to register with the Commodity Futures Trading Commission as a commodities exchange if it wants to keep on offering leveraged products.

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