Why less leverage is allowed for cryptocurrency Spot trading?

Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Bennet Source score (net votes, not local likes): 2 Original post: https://money.stackexchange.com/a/166621 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Margin trading is essentially trading+lending. When trading spot, it is the exchange who is lending you money, so they are more conservative. With futures trades, it is other traders who effectively lend you the money (they bear more of the risk). With futures, when a trader is losing money, the exchange can always simply close offsetting positions - they grant themselves the right to do it. Someone's winning position can simply be yanked away by Kraken. They should get the PnL until that point, but not beyond. But with a future, the exchange can simply take a position away. With a physical market like spot crypto, it's not so easy. Suppose you came to the exchange with 1 BTC and you sold it to me; but I bought it on margin, I only had 10% of its value. It is physically possible for the price to drop 20% instantly and never recover - putting the exchange at a loss. Worse still, the exchange may not even be able to close the trade - it is not a virtual trade, these are real positions, and they need to find real buyers and sellers. They can't take your cash away for a trade you already executed. Or rather, I'm sure some crypto exchanges might, but not the regulated ones. There's of course a risk calculus and the exchange seems happy to take some risks with its own money, but ultimately in a spot market they have more skin in the game. Hence why they take less risk.

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