I’ve received questions from some of you about what bankruptcy is, what forced liquidation is, and the differences between them. Today, I will explain in detail so you can better understand these risks.

Let’s start with what bankruptcy is. Bankruptcy occurs when the funds in your account are no longer sufficient to maintain your current trading positions. This situation corresponds to when your broker sends a margin call request. From many investors’ perspectives, this is already when the account begins to have problems — not only unable to open new positions but also incurring actual losses.

I’ll give a specific example to make it easier to understand. Suppose you have 10,000 RMB in your account and have used all this money as margin for your positions. At this point, the risk = account equity / margin = 10,000 / 10,000 = 100%. The broker usually won’t intervene at this level. But if the market moves against your prediction, and your funds decrease to 9,000 RMB, the risk becomes 90%, and the account has lost 1,000 RMB. This is the moment of what is bankruptcy — the account starts to go into negative balance. If the loss does not exceed the risk threshold set by the broker, you will only receive a margin call notification.

Next is forced liquidation. If the market continues to move against you, and losses reach 4,000 RMB, the risk = 6,000 / 10,000 = 60%. At this point, you have entered the forced liquidation zone. The broker will contact you immediately. During forced liquidation, although the risk is very high, the broker will sell all your positions to cut losses. The account still has 6,000 RMB — you do not lose all your capital completely.

But if the situation becomes extreme, and you lose 12,000 RMB, the risk = -2,000 / 10,000. What does bankruptcy really mean then? It’s when your account balance becomes negative. You not only lose all your initial capital but also owe the broker 2,000 RMB. This amount is essentially the trading margin that the broker has paid to the exchange.

The clear difference is: forced liquidation still retains some capital, while bankruptcy means the account is in the negative. Many people lump these two situations together and call them bankruptcy because both are results of losses. Forced liquidation is handled by the broker, while bankruptcy is your responsibility.

However, the real issue is not just what bankruptcy is. More importantly, you need to regularly monitor your account’s risk ratio and understand your financial situation. If bankruptcy does occur, you must repay the debt to the broker or exchange. Failure to do so will be reported to credit systems, potentially blacklisted from the market, and may even face legal action.

You might ask: do you really have to pay back what is bankruptcy? The answer is yes. When trading, you must follow the rules. Violating them can lead to serious consequences. Therefore, manage your risks wisely, always keep an eye on your account status, and never let your account go into complete bankruptcy. Wishing you successful trading!