Recently, I’ve been thinking about a problem: many beginners who just enter the crypto space get wiped out by leverage trading. The core reason is that they haven’t really understood what leverage is all about.

Let’s start with the basics. Bitcoin costs $50k each. You buy one for $50k—that’s a normal trade, nothing complicated. But leverage is different. You still buy one Bitcoin, but this time you only need to put up $5,000, and the remaining $45,000 is borrowed from the exchange. Sounds good, right? But the problem is, that $45,000 isn’t free; it’s a loan to you, and you have to pay it back.

When the market is good, it’s really satisfying. If Bitcoin rises to $55k, you sell, pay back the $45,000 loan, and your $5,000 principal doubles, making a profit of $10k. It’s like using ten times leverage to amplify your gains by ten times. But what if the price drops to $45,000? Your $5,000 principal is gone completely. Even worse, the exchange won’t wait for you. You might still be sleeping, and your position gets forcibly liquidated—that’s what we call a margin call or liquidation.

The logic of liquidation is brutal. The exchange knows your position, your funds, your leverage ratio. Once the price hits the liquidation level, the system automatically sells your position to recover their money. If the price falls even faster, not only do you lose everything, but you also owe money to the exchange. This debt is real—you have to pay it back.

And that’s not even the worst part. I want to tell you a story about those unscrupulous, unregulated exchanges. They play tricks that precisely target retail investors.

Suppose a trading asset is currently priced at $50k with ten times leverage. The exchange has all the data on investors’ positions—whether they’re long or short, how much they hold, their funds, leverage ratios—all clear. They pick a midnight hour when most people are asleep, team up with a few big players, and aggressively buy to push the price up to $55,000.

At this point, the short positions are immediately hit. People are still sleeping and can’t add to their positions, so their positions get liquidated and forcibly closed. This operation costs very little because most retail traders are asleep, so a small amount of capital can push the price higher. The liquidated positions automatically generate buy orders, helping the big players continue to drive up the price.

The price keeps rising to $75k, and all short positions with more than five times leverage get liquidated. The big players, using only ten times leverage, close their positions from $50k to $75k, earning a fourfold profit. Even more, after closing their short positions, they can reverse their operation—start shorting aggressively to crash the price back down from $75k to $25k. This time, those with more than five times leverage long positions get liquidated again. The big players buy back at the bottom.

All these trades are real; the data isn’t faked. The only difference is that the big players have larger capital reserves and insider information—they know your entry price, your position size, your leverage, and when you’re least active. Retail traders get liquidated whether they’re long or short, while the big players profit handsomely.

So you see, margin liquidation might seem like market volatility on the surface, but it could actually be a carefully orchestrated scheme by exchanges and big players. That’s why I keep saying leverage trading is extremely risky. You need sufficient knowledge, enough capital buffers, and a healthy respect for the market. Otherwise, it’s just gambling—winning is luck, losing means liquidation.

If you want to truly deepen your involvement in the crypto space, not just follow the trend blindly, I suggest starting with the basics. I have related resources on my homepage for discussion and interaction. But don’t come asking me which coin I think is good or how to make quick money—that I really can’t answer. Everyone’s risk tolerance is different. All I can do is share experience and knowledge. I hope our exchanges can always stay rational and sincere.