FTX and Binance are reducing the amount of leverage offered on crypto trades to protect customers from forced liquidations

• Two of the biggest crypto exchanges are slashing the riskiest leveraged bets.
• FTX and Binance CEOs Sam Bankman-Fried and Changpeng Zhao said their platforms would move to cap leverage at 20 times.
• Leverage works by multiplying the potential return of a given trade using debt but it can also amplify losses.

Two of the biggest crypto exchanges are slashing the amount of leverage offered to place bets on crypto prices in a bid to protect customers from forced liquidations.

In back-to-back tweets on Sunday, FTX and Binance CEOs Sam Bankman-Fried and Changpeng Zhao said their platforms would move to cap leverage at 20 times.

"In the interest of consumer protection, we will apply [the 20x leverage cap] to existing users progressively over the next few weeks," tweeted Zhao.

In his tweets, Bankman-Fried emphasized that highly levered bets above 20 times were rare on FTX, making up "way less than" 1% of the exchange's positions. The averaged levered trade used only two times leverage, he said.

Leverage works by multiplying the potential return of a given trade using debt. However, leverage can also amplify losses, leading to forced liquidations if levered losses start to overwhelm a trader's collateral.

Periods of downturn in the crypto market have inevitably led to high-profile stories of retail investors burned by forced liquidations. In May, a crypto sell-off rattled Binance's infrastructure, causing it to freeze out users for an hour as their leveraged positions were liquidated.

On Monday, Binance also announced it would soon cease margin trading for certain currencies, not including the dollar.

The FTX and Binance announcements come just days after the New York Times published a series of interviews with the CEOs, which included questions on the risks of leveraged trades.

"So there are some exceptions to this, but with most of the exchanges, a general consensus is maybe we should just get rid of 100 and 50 and anything above 10x," Bankman-Fried told the Times.

"We would get consumer outcry if we got rid of it, and we'd get very bad press. But it might be the right thing to do."