Many beginners ask me what exactly a liquidation in cryptocurrency means. Today, I’ll explain it clearly.

Let’s start with the simplest example. You spend $50k to buy one Bitcoin—that’s a regular trade, straightforward. But leverage trading is different. You buy one Bitcoin again, but you only need to put up 10%, which is $5,000. The remaining $45,000 is borrowed for you—that’s tenfold leverage. Of course, the money I lend you must be repaid later.

Now, if Bitcoin rises to $55k, a 10% increase, you sell and pay back the $45,000, leaving you with a profit of $10k. That means your $5,000 principal has doubled. Sounds great, right? But what if the opposite happens?

If Bitcoin drops to $45,000, a 10% decrease, your $5,000 is wiped out under tenfold leverage. At this point, you want to hold on and wait for a rebound? No. Because that $45,000 is my money—I have no reason to gamble with you. I have the right to sell the coins directly and take back my principal. If the price drops even faster, say to $44,000 before I sell, you not only lose everything but also owe me $1,000. That $1,000 is debt that must be repaid—that’s what we call liquidation.

The only way to avoid this is to add more margin. If you deposit another $5,000 into your account, your total assets will exceed $45,000 again, and I’ll be at ease.

Here’s a darker story. There have been many fake trading platforms in China—not just fake data, but all trades are real, yet they can still completely deceive investors.

The exchange controls all investors’ positions, account funds, and leverage ratios. If they pick a midnight when investors are asleep, the house and the exchange can act together. This is where the concept of liquidation in cryptocurrency really shows itself—it’s not just market volatility, but potentially a carefully orchestrated slaughter.

For example, if retail traders are holding $50k worth of positions, and the house aggressively goes long overnight, pushing the price up to $55,000. The full long positions with tenfold leverage are right on the edge, but since everyone is sleeping, they can’t add to their positions