Recently, someone asked me what leveraged trading means, so I’ll give a simple example for better understanding.

Suppose Bitcoin is priced at $50k. If you buy one, that’s a regular trade. But leveraged trading works differently—you only need to put up 10%, which is $5,000, and I’ll cover the remaining $45,000. That’s tenfold leverage. Of course, the money I provide isn’t a gift; it’s a loan to you, and you have to pay it back.

If Bitcoin rises to $55k, a 10% increase, and you sell to pay me back $45,000, your $5,000 principal doubles, earning a net profit of $10k. Sounds great, right? But what if the opposite happens?

If Bitcoin drops to $45,000, a 10% decline, with tenfold leverage, your $5,000 is essentially gone. At this point, you might think, “I believe in it, so I’ll hold and wait for it to bounce back.” But can I agree? My $45,000 is a loan to you, not a gamble together. What if it doesn’t bounce back? That’s why I have the right to sell the coins directly and recover my money. Even worse, if Bitcoin continues to fall to $44,000 before I sell, I take back $45,000, and you not only lose your entire investment but also owe me $1,000. That $1,000 becomes your debt—that’s what liquidation really means.

So, how can you avoid liquidation? The only way is to add margin. You deposit another $5,000 into your account, so your total cash plus Bitcoin’s value exceeds $45,000 again. Then I won’t forcibly close your position.

This mechanism itself isn’t problematic, but issues arise from human nature and information asymmetry. I’ve seen many so-called private exchanges, where all data appears real, but they can still scam retail investors completely. How do they do it? Very simply.

Suppose a tenfold leverage product is currently priced at $50k. There are many traders holding long and short positions at this price. The exchange has access to all investors’ position data, account funds, and leverage ratios—these are transparent. Then, the exchange finds a few powerful market makers, and on a dark, windy night—why choose night? Because most retail traders are asleep and won’t notice their liquidation.

The market makers go crazy long during the night, pushing the price up to $55,000. At this point, short traders with full positions and no cash are on the brink of liquidation with tenfold leverage. Since they’re sleeping and can’t add margin, their positions are automatically liquidated. This operation costs very little because most people are asleep, and a small amount of capital can push the price higher.

The liquidated shorts automatically create buy orders, effectively helping the market makers keep pushing the price up. As the price continues rising, they keep wiping out those traders who only left a little margin and had 8x or 9x leverage. The market makers are like snowballs, using a small amount of money to keep rolling upward, destroying all short positions.

Suppose the price rises from $50k to $75k; all short positions with more than 5x leverage are liquidated. The money from these liquidations goes straight into the market makers’ pockets. Since they also use tenfold leverage, they can make a fourfold profit from the move from $50k to $75k.

Even more, after wiping out the shorts, they can turn around and attack the longs. They go short aggressively, dumping coins to push the price down. Because the price from $50k to $75k was driven up by the market makers themselves, there aren’t many follow-up traders. When they short at $75k and push the price back down to $50k, it’s not hard. Then, by increasing their capital, they reverse the operation—pushing from $50k down to $25k. The traders with more than 5x leverage on the long side are wiped out again. The market makers then buy to close and harvest the profits.

All these trades are real transactions. Retail traders, whether long or short, get liquidated, while the market makers profit immensely. They need larger capital, access to detailed trader positions, and knowledge of when retail traders are less active to execute precise strikes.

Of course, these stories aren’t about Bitcoin specifically but about the tricks of unregulated, unscrupulous exchanges. After all, Bitcoin is so legitimate—there are no market makers, and no one is using insider info to cheat retail investors. Bitcoin is good; liquidation is just normal market fluctuation, with no dark secrets.

Anyway, I’ll stop here. If you want to deepen your understanding of crypto trading but don’t know where to start, check out my profile. We can exchange ideas. I hope our encounter can always stay true to the original intention.