Is Crypto Leverage Trading Legal in the US?

Bitcoin and cryptocurrency trading have gained immense popularity in recent years. But what about crypto margin trading? Is it legal in the US? Margin trading allows traders to borrow funds to increase their trading power, potentially leading to higher profits. However, it also involves higher risks. The legality of margin trading, especially altcoin and Bitcoin margin trading in the US, is a complex issue, so, if you’re considering engaging in this type of activity, it’s crucial to understand the legal landscape and potential risks.

In this article, we’ll explore the legality of margin trading and crypto leverage trading in the USA, including the regulations and restrictions in place, and provide some tips to help you navigate this complex terrain.

Crypto Leverage Trading in the US: Key Takeaways

• Margin trading allows you to trade more funds than you own by borrowing a traditional or a crypto asset from your broker.
• Crypto leverage trading is legal in the US, but regulation varies from state to state.
• The transaction fees associated with crypto margin trading typically involve platform fees, network and transaction costs, and possible liquidation fees.
• The best crypto leverage trading platforms in the US are Kraken, Coinbase Pro, and Poloniex.
• Some of the risks involved in margin trading include margin calls and liquidation, both of which can cause monumental losses.

What Is Margin Trading?

Margin trading is an advanced trading strategy that allows cryptocurrency traders to open positions with more funds than they actually have. It works by borrowing funds from a broker or an exchange. Essentially, a trader deposits a certain amount of funds as collateral, and the platform lends the trader additional funds to increase their buying power, allowing them to take larger positions than they would be able to otherwise.

One of the main benefits of margin trading is the ability to increase profit potential. With leverage, traders can amplify their gains by taking larger positions in the market. This is particularly useful in the highly volatile world of cryptocurrencies, where prices fluctuate rapidly, and traders can earn higher profits through well-timed trades.

You can learn more about crypto margin trading in this article.

Is Cryptocurrency Margin Trading Legal in the USA?

Yes, you can trade leveraged tokens in the US, but it’s not as easy as in other countries due to strict regulations.

US citizens who wish to participate in margin trading of cryptocurrencies must do so on regulated exchanges that comply with the guidelines set forth by supervisory authorities such as the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA). These include licensed futures commission merchants (FCMs) and registered introducing brokers (IBs) who offer leverage trading.

The CFTC has classified cryptocurrencies, including Bitcoin and Ethereum, as commodities, hence they fall under the jurisdiction of their regulatory mandate. This regulatory body has enacted several regulations that exchanges must follow to operate as legitimate margin trading service providers for US citizens.

Furthermore, regulated exchanges must provide clear guidance on specific margin requirements and maximum leverage limits for each trading pair. This information helps crypto traders make informed decisions about the risks of margin trading and their potential losses when participating in the cryptocurrency market.

What About Crypto Leveraged Trading in Other Countries?

In the United Kingdom, the Financial Conduct Authority (FCA) has taken a firm stance against the sale of crypto derivatives to retail consumers, banning such activities in 2020. This includes leveraged tokens and crypto futures, although margin trading for other financial instruments remains permitted under strict regulations. The FCA has focused on protecting retail investors from the high risks associated with trading with leverage, especially in volatile markets like crypto, where the potential for sudden and significant losses can be high.

In Canada, the Canadian Securities Administrators (CSA) have implemented a more cautious approach, banning margin trading on crypto platforms entirely in 2022, reflecting concerns about the inherent volatility and risk of liquidation that can occur when leveraging crypto assets.

These global regulatory changes have forced major exchanges to adapt, often through geofencing technology to restrict access in regions with stricter rules or, in some cases, exiting markets entirely, as seen with Binance’s withdrawal from Canada in 2023. As regulations continue to tighten, traders must be increasingly aware of the risks involved in leverage trade crypto, perpetual contracts, and other leveraged products, as well as the potential for liquidation if markets turn against their trading positions.

The Best Leverage Trading Crypto Brokers in the US

Here are some of the best crypto leverage trading platforms. Please note that some of them are not available to users located in the US or may restrict some features.

Kraken.com – Overall Best Crypto Leverage Trading Platform

If you are a US citizen interested in margin trading cryptocurrencies, Kraken.com is the platform for you. Kraken is a leading crypto exchange and margin broker that provides users with a high level of security, a user-friendly interface, a variety of trading pairs, low trading fees, and up to 5x leverage.

Security is a top priority for Kraken. That is why they employ a number of measures to keep user funds and personal information safe. Kraken uses two-factor authentication, SSL encryption, and cold storage to protect user accounts and ensure the integrity of data.

Kraken’s trading interface is easy to use and navigate, making it ideal for both experienced traders and beginners. The platform offers a wide range of trading pairs with fiat currencies and cryptocurrencies, allowing traders to diversify their portfolios and take advantage of market opportunities.

In terms of fees, Kraken charges some of the lowest trading fees in the industry. Besides, Kraken offers many margin trading options, including small leverage, which provides a level of protection against potential losses, as well as larger trade positions with up to 5x leverage. All in all, traders can choose the leverage most suitable for their trading strategy and risk profile.

Binance – Leading Crypto Derivatives Trading Platform

Binance offers a robust margin trading platform that allows users to trade with borrowed funds, increasing their exposure and potential profits. With cross margin and isolated margin trading options, users can access various leverage ratios depending on their risk tolerance and trading strategy. Binance supports leveraged trading on numerous cryptocurrencies with flexible leverage options, up to 10x for cross margin and 100x for futures contracts.

Traders can easily monitor their positions using advanced technical indicators, ensuring that they meet the required initial margin and maintenance margin. Binance’s platform is also integrated with both spot and derivatives markets, offering a seamless experience across different trading products.

While Binance’s global platform offers extensive leverage trading features, Binance.US provides limited services, mainly focused on spot trading with no margin trading options due to US regulations. For traders outside the US, Binance remains the top choice due to its competitive leverage trading fees, high liquidity, and user-friendly interface.

eToro – User-Friendly Crypto Trading Platform

eToro is a social trading platform offering a blend of spot trading and limited leverage trading options. Known for its intuitive interface and extensive educational resources, eToro also provides margin trading with lower leverage ratios than some competitors.

US residents have access to eToro for spot markets, but margin trading options are restricted. It’s ideal for traders with lower risk tolerance and smaller initial investments due to the platform’s focus on simplifying crypto trades for new market participants. Taker fees and other costs remain competitive, allowing traders to balance risk with potential returns.

BYDFI – Versatile Crypto Leverage Trading Platform

BYDFI is a growing crypto platform offering leveraged trades with up to 125x leverage on crypto. This platform supports margin accounts, perpetual futures contracts, and various leverage ratios, making it suitable for traders with higher risk tolerance. BYDFI provides a straightforward interface, accessible educational resources, and trading futures with a low initial margin. The platform’s robust security measures and competitive trading fees have attracted market takers.

Other Leverage Crypto Trading Platforms

1. BitMEX specializes in high-leverage trading with up to 100x leverage on derivatives and futures contracts. It’s not accessible to US residents.
2. Phemex offers crypto futures with up to 100x leverage. US traders may face restrictions.
3. Coinbase International is not available in the US. Coinbase offers spot markets and futures trading with limited leverage options. Competitive trading fees and a user-friendly platform make it suitable for beginners.
4. KuCoin offers derivatives trading and leveraged trades but is not available to US residents for margin trading.
5. Bybit is known for derivatives trading with high leverage ratios, though it restricts access for US traders.

Each of these platforms offers various leverage ratios, trading fees, and security features, so traders should assess based on their strategies, risk tolerance, and availability in the US.

What Are the Fees Related to Crypto Margin Trading in the USA?

One of the main fees associated with margin trading is platform fees. These fees cover the cost of using the platform and the margin trading service provided by the exchange. Some exchanges charge a percentage of the trade amount as a fee, while others charge a fixed rate. Traders should research the platform fees and take them into account when making margin trades.

Margin trading fees are divided into maker and taker fees. Maker fees are charged when a trader adds liquidity to the order book by placing an order that isn’t immediately matched (e.g., a limit order). Taker fees apply when a trader removes liquidity by executing an order that matches an existing one (e.g., a market order). Maker fees are typically lower to incentivize adding liquidity to the exchange, while taker fees tend to be higher as they reduce available liquidity. These fees can significantly impact the profitability of margin trades and should be considered carefully.

Traders may also incur liquidation fees. Liquidation fees are charged if a margin position is closed due to a lack of funds or margin maintenance. These fees can vary depending on the exchange and the size of the position.

You should also consider the corresponding network and transaction costs associated with the underlying blockchain. These costs are not directly related to margin trading fees, but they can impact the overall cost of margin trading. Blockchain network fees are charged for transacting on the blockchain and are often dynamic and depend on network congestion.

What to Look for in a Crypto Leverage Trading Platform

When choosing a crypto leverage trading platform, several factors should be considered to ensure it meets your trading needs effectively:

1. Cross Margin Trading and Margin Account Options: Look for platforms that offer both cross margin trading and isolated margin accounts. Cross margin allows traders to share their available margin across multiple trading positions, reducing the risk of liquidation, while isolated margin limits the margin to a single position for better risk management.

2. Leverage Ratio: Different platforms offer varying leverage ratios, often ranging from 5x to 100x. Choose a platform that provides leverage ratios suitable for your risk tolerance and trading strategy. Higher leverage allows for larger exposure with a smaller initial investment yet increases the potential for significant losses.

3. Futures Contracts: A good platform should offer various types of futures contracts, including perpetual futures that do not have an expiry date. This allows for greater flexibility in executing long-term and short-term trades with leverage.

4. Trading Volume: High trading volume on a platform indicates liquidity, which is crucial for entering and exiting trades quickly, especially when using leverage. Platforms with larger volumes help ensure your trades are executed without significant slippage, a critical aspect in leveraged positions.

5. Advanced Trading Tools: Advanced trading tools such as technical indicators, automated trading bots, and risk management features are essential for successful leverage trading. They help traders manage complex strategies and monitor their positions more effectively.

6. Initial Investment Requirements: Check the platform’s minimum margin requirements for opening leveraged positions. Some exchanges allow small initial investments to start trading with leverage, while others might require a higher amount.

7. Leverage Trading Fees: Remember that reputable platforms will always have a clear and transparent fee structure with no hidden fees.

By considering these factors, you can select a crypto leverage trading platform that aligns with your trading goals and risk management needs.

Risks Associated with Margin Trading

Margin trading can be an effective tool for experienced traders to amplify their profits in the highly volatile cryptocurrency market. However, the use of leverage also exposes traders to potential risks and losses. In this section, we will outline various risks associated with margin trading in the US and provide insights on how traders can mitigate these risks to improve their chances of success.

The Horrendous Margin Calls

Margin trading can be an effective strategy for experienced traders looking to amplify their gains in the crypto market. However, it comes with a significant level of risk and responsibility. One of the most feared aspects of margin trading is the margin call.

A margin call occurs when the value of a trader’s assets falls below the minimum margin requirement set by the exchange. This minimum requirement is the lowest amount of equity that a trader needs to maintain in their account relative to their leveraged position. If the value of the underlying asset decreases significantly, the equity in the trader’s account may no longer meet the minimum margin requirements.

When a margin call is triggered, the trader will receive a notification from the exchange to add more funds to their account to maintain the minimum margin requirement. If the trader fails to top up their account, the exchange may liquidate their position, selling off their assets to cover the margin requirements.

This can be a devastating blow, resulting in significant losses that can wipe out a trader’s entire account. To avoid being caught in a margin call, it’s essential for traders to have a solid understanding of the margin requirements and to implement risk management strategies.

One of the risk management strategies is to always set stop-loss orders to prevent significant losses. Additionally, traders can consider using lower levels of leverage and trading only with funds that they can afford to lose in case of a margin call.

It’s worth noting that margin calls are not exclusive to crypto trading. They occur in traditional markets as well, and the consequences can be just as severe. Therefore, traders must always practice caution and employ strategies that minimize risk while maximizing gains.

Liquidation of Collateral

When engaging in regular and crypto margin trading, it’s important to understand the concept of collateral and how it factors into the liquidation process. When a trader opens a leveraged position, they must deposit collateral. This collateral serves as a guarantee that the trader can cover their potential losses.

If the value of the trader’s assets begins to decline and falls below the minimum margin requirement set by the exchange, they may receive a margin call. This means that they’re required to add more collateral. Otherwise, they risk having their position liquidated.

Liquidation occurs when a trader’s collateral can no longer cover their losses, and the exchange or brokerage closes their position and sells their collateral to repay the borrowed funds. In simpler terms, the trader’s assets are sold off to help offset their losses.

The process of liquidation is commonly influenced by exchange policies and the trader’s actions. The exchange will have specific policies and procedures to determine when a trader’s position should be liquidated. These policies will usually depend on factors such as minimum margin requirements, the volatility of the assets in question, and the size of leverage used.

Speaking of a trader’s actions, they can also contribute to the likelihood of their position being liquidated. For example, if a trader uses significant leverage or fails to maintain adequate collateral in their account, they’re at a higher risk of having their position liquidated.

Leverage Trading Crypto (USA) FAQ

Is margin trading crypto risky?

Yes, margin trading in crypto is risky. It’s like betting more money than you have on a race. If your prediction is wrong, you could lose your money quickly.

What is 10x leverage in crypto?

10x leverage in crypto means you’re betting ten times the amount of money you actually have. If you have $100 and use 10x leverage, you’re trading with $1,000, aiming for bigger wins but also facing the risk of larger losses.

Does Binance US support margin trading?

No, as of March 2024, Binance does not offer margin trading services.

Can US traders use leverage?

Yes, US traders have access to leverage when trading certain financial instruments, such as futures contracts, options, and margin accounts offered by regulated brokers. However, the availability and specific regulations surrounding leverage may vary depending on the financial product and the broker/platform being used.

Can US citizens trade crypto on margin?

Yes, US citizens can trade cryptocurrencies on margin. Some cryptocurrency exchanges and trading platforms, both within and outside the United States, offer margin trading services to eligible users, including US citizens. It is essential to comply with the regulations imposed by specific exchanges and to meet their requirements, such as minimum equity thresholds or verification processes.

Can US citizens margin trade on Kraken?

Yes, US citizens can engage in margin trading on Kraken. Kraken is a well-known and reputable cryptocurrency exchange that provides margin trading services to eligible users, including those from the United States.

Can you trade crypto on 100x leverage?

You can trade crypto futures on 100x leverage on the BitMart Futures trading platform. However, please keep in mind that this is incredibly risky, and you shouldn’t enter trades like that unless you are absolutely confident you know what you’re doing. While the potential profits you can earn from trading digital assets on 100x or 50x leverage are high, so are the potential losses.

Can you use trading bots when leverage trading crypto?

Yes, trading bots can be powerful tools for crypto leverage trading, automating strategies to execute trades based on predefined rules and market conditions.

In leverage trading, where positions are amplified using borrowed funds, bots can offer significant advantages by reacting quickly to market fluctuations, thus minimizing human errors and emotional decision-making. However, they should be used with a clear understanding of the underlying risks and trading strategies.

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Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.