LeapRate Exclusive: Forex brokers cutting leverage on Bitcoin trading as price plunges 33%


LeapRate has learned that a number of retail forex brokers offering Bitcoin trading have increased margin requirement and scaled back the leverage offered to traders on Bitcoin trading. Some, including a number of Binary Options brokers, have suspended Bitcoin trading altogether, at least temporarily.

Forex brokers normally welcome price volatility, for the simple reason that more volatility translates into more trading volumes. But sometimes you can have too much of a good thing. Especially in a market like Bitcoin trading, where true hedging and liquidity sources are difficult if not impossible to come by.

And right now, Bitcoin price volatility is simply too much.

Bitcoin price chart Jan 2015Bitcoin price chart past month, and price movement Wed Jan 15. Source: Bitstamp.

Bitcoin prices dropped as much as 33% on Wednesday, as a six month slide in Bitcoin prices from the $600-$700 level last summer accelerated. Bitcoin was trading as low as $152.40 on Wednesday.

You never know for sure with Bitcoin, but the recent selling panic seems to be predicated by:

  1. Last week’s hack of leading Bitcoin exchange Bitstamp. About $5 million in Bitcoins were stolen from Bitstamp, and the Bitstamp website remained down for several days. Everything is working now, but events like this aren’t very good for investor confidence.
  2. Russia. With many wealthy Russians reporting using Bitcoins to spirit money out of the country, the Russian government is reportedly making good on previous threats to ban and block Bitcoin related websites.

A number of leading retail forex brokers offering Bitcoin trading still seem to be offering the service as normal – for example Plus500 Ltd (LON:PLUS), which offers up to 17x leverage on Bitcoin trades, and AvaTrade, up to 20x. But some smaller brokers are cutting leverage or waiting out the storm by suspending trading.

A good review of why Bitcoin prices are crashing was put out by CNBC Fast Money’s Brian Kelly, and can be seen here.

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LeapRate Exclusive: Forex brokers cutting leverage on Bitcoin trading as price plunges 33%

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