Recently, I've seen many beginners asking what exactly liquidation in cryptocurrency trading means, so I decided to explain it thoroughly.

Let's start with the basics. Suppose Bitcoin is $50k each. If you buy directly with $50k, that's a regular trade. But leverage trading is different. You only need to put up 10%, which is $5,000, and I cover the remaining $45,000 for you—that's tenfold leverage. Of course, the money I lend you isn't free; it's borrowed, and you'll have to pay it back later.

Now, if Bitcoin rises to $55k, you've gained 10%. Selling and paying me back $45,000 leaves your original $5,000 principal doubled to $10k. Sounds great, right? But what if Bitcoin drops to $45,000? That's a 10% decline, but with tenfold leverage, your $5,000 is effectively wiped out. At this point, you might think, "Price will bounce back, I’ll hold on and not sell." But can you? Sure, you can hold your own money as you wish, but the borrowed money is mine. Why should I gamble with you? So I have the right to sell your position and take back my $45,000. If I sell slowly and Bitcoin drops further to $44,000, not only do you lose your entire investment, but you also owe me $1,000. That $1,000 becomes your debt—that's liquidation.

The only way to avoid liquidation is to add more funds to your account. If you deposit another $5,000, your total cash plus Bitcoin's value will exceed $45,000 again, and I’ll be at ease.

That’s the theory. Now, let me tell you a real story. In China, there used to be many fake trading platforms. Unlike scam sites that just fake data, these exchanges' data were all real, but they still managed to wipe out investors completely.

For example, there was a tenfold leverage product, say, trading "chives" (a slang term for small traders), with the price at $50k per bundle. The market had many traders—some long, some short. The exchange knew each investor’s position, how much cash they had, their leverage ratio—all very transparent.

Then, on a dark night, the exchange teamed up with some powerful market makers, prepared large amounts of capital, and started manipulating the market. Why choose midnight? Because most investors are asleep. How can they react quickly to avoid liquidation if they’re sleeping?

That night, the market makers aggressively buy, pushing the price from $50k to $55,000. At this point, short traders with full positions and no cash in their accounts, using tenfold leverage, are forced to the brink of liquidation. They’re sleeping and can’t add to their positions in time, so their positions are forcibly closed. It doesn’t take much money to push the price up because most people are asleep. The traders who get liquidated then automatically create new buy orders, helping the market makers push the price even higher.

As the price continues to rise, it will trigger the liquidation of those with only small amounts of capital and leverage of 8x or 9x. The market makers only need a small amount of money to keep climbing, snowballing and liquidating various leveraged short positions. For example, if the price rises from $50k to $75k, all shorts with more than 5x leverage get liquidated. Where does that money go? If the market maker also uses tenfold leverage, closing a position from $50k to $75k can net a profit of four times the initial capital.

Even more impressively, after liquidating the shorts, the market makers can turn around and attack the longs. They now aggressively short, dumping to push the price down. Since the price from $50k to $75k was pushed up by the market makers themselves, there aren’t many retail traders following along. Dumping from $75k back to $50k is easy. By increasing their capital and doing the same operation in reverse, they can smash the price down to $25k. At this point, all longs with more than 5x leverage near $50k are liquidated. The market makers buy back at the lower price, completing a full cycle of harvesting.

All these trades are real. The key is that the market manipulators have vastly more capital than retail traders and have insider information on trading data—knowing your entry price, position size, leverage, and even when you’re inactive. With this, they can precisely target and liquidate positions. Retail traders get wiped out whether they go long or short, while the manipulators profit immensely.

So, in simple terms, cryptocurrency liquidation means your margin is wiped out. But on dishonest exchanges, liquidation is often not just due to normal market fluctuations; it’s a carefully orchestrated trap by market manipulators.

As for Bitcoin being so legitimate—where are the market makers? Who controls 80% of the chips with only 20% of the people? And Bitcoin is so secure—how could wallets or exchanges use your trading data to scam you? In short, liquidation in the market is always a normal situation; there are no dark schemes.

If you want to deepen your understanding of crypto trading but haven’t found your direction yet, or want to get started quickly, check out my profile. We can communicate and exchange ideas. I’ll provide a platform for discussion, and I plan to explore both futures and spot trading with everyone. But please don’t just ask me which coin I think is good or how to make money with a certain coin—I honestly don’t know. I hope our encounter can always stay true to the original intention.