eToro is among the financial companies that have responded to the SVB's collapse. They have significantly reduced the maximum leverage on new trading positions in the banking sector to 1:1, a decision communicated to their clients in response to current market conditions.
The unexpected collapse of Silicon Valley Bank (SVB) in mid-March 2023 sent shockwaves through the equity markets. The rising interest rates and a devaluation of bonds and MBS severely impacted the value of SVB's assets, raising concerns about its solvency. SVB had to sell $21 billion worth of assets on March 8, 2022, incurring significant losses, which further fueled doubts about its ability to return depositors' money.
This contagion effect extended to other US banks, such as Signature Bank and Silvergate Bank, specializing in cryptocurrency-friendly services, announcing their closure several days after SVB's downfall. The repercussions of SVB's collapse sent shockwaves through the US banking sector, prompting eToro to take action.
eToro's decision to reduce leverage specifically impacts future trading positions, while existing positions remain unaffected. Leverage in trading allows a trader to control a much more prominent position size in the market than the amount of capital they have deposited.
For example, with $1,000 and a 1:100 leverage, a trader can control a $100,000 position in the market. When a broker like eToro decreases leverage, traders must maintain larger trading margins.
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