Canada Up Against Leveraged Trading – A Cause for Concern?

The high risk that traders are exposed to when they trade risky assets using leverages has pushed many countries’ regulatory authorities to limit the amount of leverage permissible for trading these assets today. The Canadian Securities Administrators have taken the lead today in banning crypto exchanges in the country from providing access to leveraged trading on their platforms.

Similarly, the high risk involved in the use of the stablecoins especially following the de-pegging of the TerraUSD has pushed the CSA to further ban listing the stablecoins on their platforms too. This means CFD traders can no longer trade crypto in Canada today. Is this a cause for alarm? Has the authority outrightly banned crypto trading in Canada? This work has provided useful insights into these pressing questions today.

What is leveraged trading?

Leveraged trading is a common practice in CFD trading whereby traders are allowed to expand their positions in the market using a borrowed fund from the broker or any other trading platform that offers margin trading. Leveraged trading increases the trader’s risk exposure as he cannot lose any portion of the loan while trading outside his capital whenever the market goes against him. The leverage offered does not add up to the trader’s capital but only boosts his buying power.

Canadian Securities Administrator (CSA) bans leverage trading in the country

The Canadian Securities Administrators have taken a more serious step in controlling leveraged trading within the country by banning all crypto exchanges operating in Canada from providing leveraged trading services to traders within the country. This new policy comes as a re-enactment of the previous measures embarked upon earlier in August this year; where all crypto exchanges were required to provide a pre-registration undertaking, stating their commitment to abide by the terms and conditions for rendering financial services within the province, which included: holding all their Canadian clients’ assets with an appropriate custodian and ensuring that they are segregated from the platform’s proprietary business always.  They were further prohibited by the agreement, not to offer their Canadian clients any access to trade leveraged crypto assets including any crypto asset that could be seen as a security or a derivatives.

These bans on leveraged trading were reiterated on Monday 12, December 2022 by the CSA which called on all the crypto exchanges operating in Canada today to ensure that they abided by these legislations.

Speaking further on the need to abide by these policies, the CSA revealed that the recent happenings in the crypto market have made it very necessary for them to strengthen its previous policies towards crypto trading platforms operating in the country.

Why is Canada Up against leveraged trading today?

Leveraged trading is amongst the riskiest investments. The risk is all the more increased when it applies to unregulated crypto assets and derivatives. The recent happenings in the crypto industry have greatly exposed the vulnerability of investing in these assets. This has caused the CSA to take actions towards protecting their citizens from taking excessive risks when trading these assets, hence denying them access to leveraged trading.

Is the fight against leveraged trading in Canada today a cause for concern?

Many traders have been critical of the decisions of the Canadian authorities to remove access to leveraged trading for the citizens. Some consider it a threat to the crypto market, especially the decision to further remove access to stablecoins which has been considered a security.

Notwithstanding, the Canadian authorities have not banned citizens from trading cryptocurrencies. Thus, one can still trade cryptocurrency in Canada today apart from using leverage to do so.