Recently, many beginners have only a superficial understanding of leveraged trading, so I’ll explain what this thing is in the simplest way.

First, let’s talk about the basics. You have 50k yuan, and buy a Bitcoin worth 50k yuan—that’s called a regular trade, nothing special. But leveraged trading is different. You buy the same Bitcoin, but you only need to put in 5,000 yuan, and the remaining 45,000 yuan is covered by me—that’s tenfold leverage. Of course, the money I cover isn’t free; it’s a loan to you, and it must be repaid later.

What are the benefits? If Bitcoin rises to 55k, a 10% increase, your 5,000 principal doubles directly. When you sell and pay back the 45,000, you net a 10k profit. Sounds pretty awesome, right? But it works the same in reverse. If Bitcoin drops to 45,000, a 10% decrease, under tenfold leverage, your 5,000 becomes essentially wiped out.

At this point, you might think, I believe the price will bounce back, so I won’t sell and will hold on. But the problem is, that 45,000 is my money. Why should I gamble with you? I can’t let my money be at risk like that. So I have the right to sell your coins directly and take my money back. If I sell too slowly and Bitcoin drops to 44,000, not only do you lose everything, but you also owe me 1,000 yuan. That 1,000 is debt that must be repaid. That’s what’s called a liquidation.

The only way to avoid liquidation is by adding margin. Deposit another 5,000 yuan into the account, so your cash plus the Bitcoin’s value again reaches 45,000 yuan, and I’ll be at ease.

At this point, I want to tell a story. There used to be a bunch of fake exchanges in China, different from scams that just make up data. These exchanges’ data were all real, but they still managed to deceive investors completely.

For example, there was a leveraged product called “Chives” (a slang for retail traders), with a price of 50k yuan per bundle. Many traders held long and short positions at this price. The exchange knew exactly everyone’s positions—how much money was in each account, what leverage they used, everything.

Then, it’s simple. On a dark, windy night, the exchange teams up with some powerful market makers, ready with large funds, and can wipe out everyone. Why night? Because most investors are sleeping. How can you add margin in time if you’re asleep?

The market makers go crazy long during the night, pushing the price of “Chives” up to 55,000. At this point, short traders with full positions and tenfold leverage are on the brink. But they’re still sleeping, so they can’t add margin, and their positions get liquidated. This operation costs very little money because most people are asleep, so the required capital is small. Plus, after the shorts are liquidated, the system automatically generates new buy orders, which helps the market makers keep pushing the price higher.

As the price continues to rise, traders with some cash and 8x or 9x leverage also start getting liquidated. The market makers only need a small amount of money to snowball and wipe out all traders with 7x, 8x, or 9x leverage. Suppose the price goes from 50k to 75k yuan; all short sellers with more than 5x leverage get liquidated. Where does that liquidation money go? If the market maker also uses tenfold leverage, from 50k to 75k, their pure profit can be four times.

Even more ruthless, after shorting, the market maker can turn around and go long. Now, they aggressively short, dumping the price. Since the 50k to 75k rise was created by the market maker, there’s not much follow-through. Short selling with leverage can also make money—short at 75k and then dump back to 50k, which isn’t hard. Increase the funds, do the opposite of the previous operation, and push the price down from 50k to 25k. This time, all traders with more than 5x leverage long positions get liquidated. The market maker closes their position and pockets the profit.

All these trades are real, not fake. It just requires larger capital than retail traders and insider information—knowing exactly at what price you opened your position, how big it is, what leverage you used, and even when you’re inactive. This allows them to precisely target and wipe out retail traders, while the market makers consistently profit.

Of course, the story above isn’t about Bitcoin; it’s about the shady practices of unregulated black-market exchanges. After all, Bitcoin is so legitimate—how could there be market makers? How could 20% of people control 80% of the chips? Bitcoin is so secure—how could someone cheat by trading data? So, liquidation is just normal market behavior, with no dark secrets.

All this is to remind everyone: leverage trading amplifies not only gains but also risks. The transparency of trading data, the regulation level of exchanges, and your own risk management skills determine whether you end up making money or losing it. I hope everyone stays clear-headed in this market.