Huobi crypto exchange has decreased the size of leverage trading for its existing users in China and has stopped new traders from entering the derivatives markets owing to the current crypto regulatory policy in the country.

Huobi China Restricts Derivatives Leverage Trading

China’s popular cryptocurrency exchange Huobi has reportedly restricted the size of leverage to its current users from 125x to only 5x over concerns about the new regulatory crackdowns. Additionally, new users will not be able to use leverage at all.

It’s still unclear as to how long Huobi’s new derivatives trading policy will last. Chinese blockchain journalist, Wu points out that this could drive traders to other exchanges “Chinese people who cannot play highly leveraged contracts will go to Binance,” claiming many investors already had accounts with OKEx, Binance, and Huobi.

This impact may be overestimated. Chinese people who cannot play highly leveraged contracts will go to binance. Most Chinese investors have three accounts with OK Huobi and Binance. Unless the Chinese government targets Binance.

— Wu Blockchain (@WuBlockchain) June 16, 2021

Apart from China, Huobi is also facing tough times in other Asian markets like South Korea amid rising regulatory concerns.

For instance, Huobi Korea recently stopped trading its native crypto Huobi Token (HT) following regulatory warnings from South Korea’s Information Security Management System.

Restricting the Leverage Size Due to Regulatory Concerns

Leverage trading allows investors to borrow huge sums and add them onto a position, which can increase profits. However, a wrong move can result in a margin liquidation where the loan must be paid off or more collateral must be added before the trader’s balance goes into the negative.

With the availability of high amounts of leverage often up to 125x, a tiny move can result in a trader’s entire account being blown up to leverage levels of 50x or 100x and can be even compared to that of gambling if not used with caution.

Amid the regulatory crackdown on cryptocurrencies, Huobi perhaps intends to minimize retail investors from taking on large or unnecessary risks.