This Lunar New Year, I realized that more and more relatives are asking me about crypto, especially about what is called account liquidation. At first, I tried to avoid it because... I myself am also stuck in the market and didn't want to recall those painful memories. But one relative was very persistent, constantly asking me "What is account liquidation?" until I could no longer escape.

I decided to explain it to him. First, I asked: "If you have 10,000 yuan and buy Bitcoin with that amount, and Bitcoin increases by 10%, then you make 1,000 yuan, right?" He nodded. "If it decreases by 10%, then you lose 1,000 yuan?" He nodded again. That’s called spot trading, like buying stocks normally, where account liquidation does not occur.

But the story is completely different when you use leveraged contracts. For example, you still have 10,000 yuan, but open a contract with 9x leverage. At this point, the trading platform lends you 90,000 yuan, turning your capital into 100,000 yuan. Now, if Bitcoin increases by 10%, you don’t just make 1,000 yuan, but 10,000 yuan. Sounds amazing, right?

But the danger is: when profits increase tenfold, losses also increase tenfold. If Bitcoin drops by 10%, you will lose 10,000 yuan — exactly equal to your entire actual capital. At that moment, the trading platform will automatically liquidate to cut losses, reclaiming the 90,000 yuan they lent you. That is account liquidation — your actual capital drops to zero.

I saw the look in his eyes then, mixed with greed, fear, and confusion. I knew that once he understood the concept of account liquidation, he would never view the crypto market the same way again. The difference between spot trading and contract trading is the difference between safety and danger — only separated by a decision to use leverage.