Interest from Institutional Investors
“Over the last few years, we have seen growing interest from institutions that desire advanced trading features”, said Adam White, head of GDAX, in the announcement on Monday. He also added that:
We believe this feature [margin trading] will attract a new wave of institutional clients, ultimately reducing volatility and supporting growth of the digital asset industry.
White believes that there is a pent-up demand for digital currency trading from institutional traders since they have been sitting on the sideline while waiting for the U.S. Securities and Exchange Commission (SEC) to make its decision on a Bitcoin ETF. When it became clear to them that there would not be a Bitcoin ETF, White said that these professional investors would turn directly to bitcoin spot exchanges.
He then described how “the only exchanges these institutional traders are going to go to are the ones like GDAX that are based in the U.S., with an impeccable record, the trusted and secure exchanges that meet these regulatory requirements”, Forbes reported. White also noted that:
We’re the first and only exchange to offer a product that meets the requirements of these professional and institutional traders having accounted for state and federal regulatory requirements.
Margin Trading on GDAX
In addition to operating in Europe, the UK, Canada, Australia and Singapore, GDAX is available in U.S. states “where Coinbase is either licensed to engage in money transmission, where it has determined that no such license is currently required, or where licenses are not yet being issued with respect to Coinbase’s business”, according to the company’s website. Currently, Coinbase is licensed to engage in money transmission in 38 U.S. states and territories. Its website states that the “US states not yet supported by GDAX include: Wyoming, Hawaii, and Minnesota”.
To access margin trading on GDAX, a customer has to be an Eligible Contract Participant (ECP), “as defined in Section 1a(18) of the Commodity Exchange Act and applicable regulations thereunder”, Coinbase explains. There are many ways to qualify as an ECP. For example, a financial institution as defined in Section 1a(21) of the Commodity Exchange Act, an entity with total assets exceeding $10,000,000 or an individual with “amounts invested on a discretionary basis, the aggregate of which is in excess of $10,000,000” all qualify.
While GDAX is tailored to institutional investors, it is not the only bitcoin exchange offering margin trading, however. Some exchanges that offer margin trading to U.S. customers include Kraken, the crypto-traders’ favorite Whaleclub, cloud mining exchange Cex.io, Evolve Markets, 1broker, etoro, Avatrade, Japan’s Coincheck and the Forex platform Simplefx. Bitfinex also offers margin trading but not to U.S. customers.
For margin trading on GDAX, White said in the announcement that:
Eligible customers can trade up to 3x leveraged orders on BTC, ETH, and LTC order books.
What do you think of Coinbase offering margin trading? Let us know in the comments section below.
Images courtesy of Shutterstock and Coinbase