Why is it said that leveraged contracts are not allowed in the currency circle?

Leveraged contracts, instruments magnifying profits and losses, are not permitted in the currency circle due to heightened risk, lack of oversight, and complexity, leaving traders with alternative options for cryptocurrency exposure.

Dec 16, 2024 at 11:43 am

Why is it said that leveraged contracts are not allowed in the currency circle?

Leveraged contracts are financial instruments that allow traders to increase their exposure to an underlying asset by borrowing funds from a broker. This can potentially lead to higher profits, but it also comes with increased risk.

In the currency circle, leveraged contracts are often used to trade cryptocurrencies. However, there are a number of reasons why leveraged contracts are not allowed in the currency circle:

• High risk: Leveraged contracts can amplify both profits and losses. This means that traders can lose more money than they initially invested.
• Lack of regulation: The currency circle is largely unregulated, which means that there is no oversight of leveraged contracts. This can lead to fraud and abuse.
• Complexity: Leveraged contracts can be complex financial instruments. This makes them difficult to understand for many traders.

Alternatives to leveraged contracts

There are a number of alternatives to leveraged contracts that traders can use to increase their exposure to cryptocurrencies. These include:

• Spot trading: Spot trading is the buying and selling of cryptocurrencies at the current market price. This is the simplest and least risky way to trade cryptocurrencies.
• Margin trading: Margin trading allows traders to borrow funds from a broker to increase their trading power. However, margin trading is more risky than spot trading, and traders can lose more money than they initially invested.
• Futures contracts: Futures contracts are agreements to buy or sell an asset at a set price on a future date. Futures contracts can be used to hedge against risk or to speculate on the future price of an asset.

Conclusion

Leveraged contracts are not allowed in the currency circle because they are high risk, unregulated, and complex. Traders should be aware of these risks before using leveraged contracts. There are a number of alternatives to leveraged contracts that traders can use to increase their exposure to cryptocurrencies.