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Understanding Crypto Loss Limits

As a registered crypto trading platform in Canada, Newton is required to assess your risk tolerance and ensure you understand the risks associated with trading crypto assets.

To establish your account’s loss limit threshold, we ask for details about your financial situation, crypto experience, and comfort with risk. Your answers are self-declared. We do not ask for supporting documents, and this information is not shared with the Canada Revenue Agency (CRA) unless otherwise required by law or regulation. It is only used to calculate your account’s loss limit on Newton’s platform. We monitor your account’s realized and unrealized losses daily and will notify you if you are approaching or have reached your unique threshold.

What Are Loss Limit Notifications?

Loss limit notifications are alerts triggered when your account has reached its unique loss limit threshold. The loss limit notification may have been triggered by losses from one or more of the following:

• Realized Losses: from selling crypto
• Unrealized Losses: based on the current market value of your holdings
• Combined Losses: both realized and unrealized losses

These notifications are triggered based on your account’s customized loss limit threshold, which is determined by the information you provide. If you approach or exceed your account’s threshold, you will receive a notification by email and in the app. You must acknowledge this notification of the loss on the platform before being able to make any other trades on the platform.

These alerts are intended to keep you informed about your portfolio’s performance and to help you review whether your investments remain consistent with your financial situation and goals.

Why We Use Loss Limits

Setting a loss limit for each account on the Newton platform is a requirement for registered Canadian crypto trading platforms under Canadian securities regulations. These obligations are set by the Canadian Securities Administrators (CSA) and reviewed and enforced by CSA members such as the Ontario Securities Commission (OSC). Platforms must assess your financial assets and investment background and apply a personalized threshold for notifying you of actual and potential losses.

These measures are intended to encourage responsible participation in crypto. They do not prevent losses and do not ensure profitability.

How Loss Limits Are Set

Your loss limit is calculated based on the personal and financial information you provide when you open an account or update your risk profile, namely yours:

• Annual income
• Net worth
• Past crypto experience
• Risk tolerance

It is important to keep your information current. If your income, net worth, or investment experience changes, updating your profile will help ensure your loss limit reflects your circumstances today.

We use the following formula to calculate your account’s Lifetime Profit and Loss (PnL):

Lifetime PnL = Realized Gains/Losses + Unrealized Gains/Losses

• Realized gains or losses are updated when you sell assets, and are calculated against the cost basis recorded on our platform for the position sold.
• Unrealized gains or losses are recalculated daily using the average cost basis (the average price you paid for your crypto) of your holdings.
• Crypto deposited from an external wallet is assigned a cost basis equal to its market value at the time of deposit.

What Happens If You Don’t Enter Accurate Numbers?

Based on the information you provide, even if inaccurate, a loss limit threshold is calculated for your account. You will receive a notification if you are approaching or exceeding this threshold. If you receive a notification, your account will temporarily be restricted until you acknowledge it on the platform.

Repeatedly reaching your loss limit can result in further restrictions. If this occurs several times within a year, your account may be placed in a 30-day cool-down period during which trading activity is paused.

What Happens If You Exceed Your Loss Limit?

If your account’s losses exceed your account’s loss limit threshold, you will need to acknowledge the notification of the loss through the platform. You will also have the option to review and update the financial information you have shared with us to ensure it still accurately reflects your risk profile.

If the losses in your account continue to increase and you have acknowledged the loss limit notification multiple times in the past year, your account may be placed into a 30-day cooldown period. During this period:

• You cannot deposit additional fiat or buy new crypto
• You can still deposit crypto, sell crypto, withdraw crypto or fiat, and stake eligible assets

FAQs

What if I don’t provide the requested information?

If we do not receive the necessary information, we cannot set a loss limit for the account. This means you will not be able to complete the process of opening a new account on the platform or continue trading on an existing one.

Can I opt out of having a loss limit?

No. Loss limits are required by regulation. All regulated custodial crypto trading platforms in Canada must enforce them.

Will my loss limit change?

Your account’s loss limit is recalculated whenever your responses to the risk questionnaire are changed. You will have the opportunity to review and update your information on an annual basis, as well as when you reach your loss threshold. It is important to keep your information current so your loss limit reflects your circumstances today. If your financial situation or risk tolerance significantly changes (or you have made an error in the form submission), please contact support.

Will Newton sell my crypto if I’m at a loss?

No. Newton will not sell your crypto because you have approached or reached your loss limit.