What are Trading Rules?
Trading rules in cryptocurrency refer to regulations and restrictions imposed by exchanges to define how buying and selling activities can be conducted on their platforms. These rules govern leverage limits, order restrictions, transaction fees, margin requirements, and liquidation thresholds.
How do they work?
Each exchange establishes its rules, which apply to both spot markets (direct buying and selling of cryptocurrencies) and futures markets (leveraged derivative contracts). These rules determine:
Minimum and maximum order size: Defines the size range for trading minor and significant cryptocurrencies.
Tick size: Specifies the minimum price increment allowed for placing an order.
Trading fees: Varies based on the order type and user tier.
Margin and leverage: For futures trading, the rules set how much capital traders can borrow and the margin required to keep positions open.
Liquidation limits: Establish when a leveraged position will be automatically closed by the exchange due to losses.
Benefits of Trading Rules
✅ Market structure and order: Ensures clear rules for all traders, preventing chaos.
✅ Protection against manipulation: Helps prevent practices such as wash trading and spoofing.
✅ Increased liquidity: Smoothens market operations through structured order placement.
✅ Financial security: Assists traders in managing risks in volatile markets with well-defined margin and liquidation policies.
Disadvantages of Trading Rules
❌ Trading restrictions: Some traders might feel limited by minimum order sizes or leverage restrictions.
❌ Hidden costs: Fees can vary with trading volume, and some exchanges impose wide spreads.
❌ Forced liquidations: Futures margin rules can trigger automatic liquidations even when a trader intends to hold their position.
❌ Differences between exchanges: Each platform’s unique rules may confuse traders switching between exchanges.
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