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Why Do Exchanges Cap the Maximum Leverage for Certain Contracts?

To limit systemic risk and protect the insurance fund by maintaining a wider buffer between liquidation and bankruptcy prices.
Greeks.Live22.11.25

Why Do Exchanges Cap the Maximum Leverage for Certain Contracts?

Exchanges cap maximum leverage to manage and limit their systemic risk exposure. Higher leverage dramatically increases the probability of liquidation and the potential for a negative balance, which the insurance fund must cover.

By capping leverage, the exchange maintains a larger buffer between the liquidation and bankruptcy prices, protecting the insurance fund and reducing the risk of Auto-Deleveraging or socialized losses.

What Is an ‘Insurance Fund’ in the Context of a Crypto Derivatives Exchange?
What Is the Relationship between Leverage and Bankruptcy Price Proximity?
What Is the Significance of the “Spread” between These Two Prices for the Insurance Fund?
Why Are Perpetual Futures Liquidation Profits Often Directed into the Insurance Fund?

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