Recently, I’ve been seeing a lot of new traders asking what leverage trading is all about, so I’ll just lay out my understanding clearly.

Let’s start with the most basic case. Suppose Bitcoin is 50,000 each right now, and you have 50,000 in cash. If you directly buy one, that’s called spot trading. But leverage is different. Buying the same one Bitcoin, you only put up 5,000, and the remaining 45,000 is provided by me—you’ll have to pay me back later. This is ten-times leverage. Sounds good, right? If Bitcoin rises to 55,000, you profit 10,000, which is like your 5,000 principal doubling. But what about the other way around?

This is where liquidation comes in. If Bitcoin falls to 45,000—only a 10% drop—then under ten-times leverage, your 5,000 is gone. Even more painful is that I won’t wait around for a rebound, because it’s my money. I have the right to sell your coins immediately and get back my 45,000. If you sell slowly and Bitcoin drops to 44,000, not only do you have nothing left to your name, you also end up owing me 1,000. This 1,000 is debt—you must repay me. This whole process is called liquidation.

Want to avoid liquidation? The only way is to add margin. Put another 5,000 into your account so that the value of your funds and coins can again cover my 45,000.

Now let me tell a story. In mainland China, there used to be a large number of unregulated fake exchanges. Not the kind that falsify data—because the data was real—but they still managed to leave investors completely wiped out.

For example, a trading product with ten-times leverage—let’s casually call it “trading leeks” (retail traders). Suppose the current price is 50,000 per bundle. The exchange controls all investors’ position data, account funds, and leverage ratios—this is the key information.

Then you just wait for a night with dark skies and strong winds. Why does it have to be in the middle of the night? Because most retail investors are asleep and can’t respond in time to add margin. At that moment, the “zhuangjia” (the operator) teams up with the exchange, concentrates capital, and goes all-in crazy long, pushing the “leeks” price straight up to 55,000. Long positions with full exposure and no cash—under ten-times leverage they immediately cross the liquidation line. The investor themselves is still dreaming, unable to add margin, and their coins get forcibly liquidated. This move doesn’t take much money because most people are asleep; with only a small amount of capital, you can push up the price. The liquidated shorts will automatically form buy orders, which in turn helps the operator keep raising the price.

As the price continues rising to 60,000 and 65,000, investors using 9x and 8x leverage also start getting liquidated. In the end, the operator only spends a small amount of money to sweep prices higher all the way, blowing up the 7x, 8x, 9x, and even 5x leverage investors. Suppose the price is driven from 50,000 to 75,000—then every short position using 5x leverage or higher gets liquidated. Where do the liquidation proceeds go? If the operator is also using ten-times leverage, then liquidating from 50,000 to 75,000, their net profit can be 4x.

Even more ruthless: after the operator finishes blowing up the shorts, they can do the opposite. They go even crazier short, dumping to suppress the price. Since 50,000 to 75,000 were pushed up by the operator themselves, there won’t be much follow-through buying. It’s not hard for the operator to slam it from 75,000 back down to 50,000. Then they increase capital further—this time they slam from 50,000 down to 25,000. All the investors who were long with 5x leverage or higher get liquidated again. The operator buys to close positions, completing the “harvest.”

All of the trades are real executions—only the operator has control over the retail traders’ entry prices, positions, leverage ratios, and the time periods when trading is inactive. With that insider information, plus a capital amount far greater than retail traders’, you can carry out precise targeting. No matter whether retail traders go long or short, they get liquidated, while the operator makes a fortune.

Of course, the story above isn’t about Bitcoin. That’s something those shady unregulated exchanges in the community would do. With Bitcoin being this legitimate, how could there be an operator? How could 20% of people control 80% of the funds? And with Bitcoin being this safe, how could someone trick people through trading data and wallets? So liquidation must only be normal market behavior—there definitely can’t be any shady dealings.

If you want to seriously develop in the crypto space but haven’t found your direction yet, and you want to get started quickly, you can come check out my homepage. Let’s exchange ideas with each other. I’ll provide a platform for everyone to communicate, and if there’s a chance, I’ll also lay out plans with you for both contracts and spot. But don’t come up and ask me things like whether I think a certain coin can make money—those questions I really can’t answer. I hope our meeting can always stay the way it was at the beginning.