A few days ago, I encountered a situation quite familiar every New Year’s — family members asking about cryptocurrencies. Recently, the story of Trump issuing digital currency has made crypto very popular, so during family gatherings, everyone is curious and wants to learn more. A relative kept chasing me, asking what it means to have your account "burned out." Honestly, I didn’t want to answer because it’s a sensitive topic, bringing back unpleasant memories. But he was very persistent, blocking the bathroom door just to ask. He said he’d thought about it for a long time but still didn’t understand — if buying crypto mostly results in losses, how can an account be burned to zero?

Clearly, he was confusing cryptocurrencies with stocks. Seeing that I couldn’t avoid it, I decided to explain clearly. I used a simple example: suppose you have 10,000 yuan, can you buy Bitcoin with 10,000 yuan? He nodded. If Bitcoin increases by 10%, you make a profit of 1,000 yuan; if it decreases by 10%, you lose 1,000 yuan. That’s called spot trading, similar to buying regular stocks, which will never burn your account to zero.

The real problem lies in leveraged contract trading. I explained: with 10,000 yuan capital, if you open a 9x leveraged contract, your capital becomes 100,000 yuan. When Bitcoin rises by 10%, the profit isn’t 1,000 yuan but 10,000 yuan — a tenfold increase! Excited, right? But that’s the trap. Because when Bitcoin drops by 10%, the loss also multiplies by 10.

He asked why the exchange lends money. I replied: they make more trading fees. When the capital is amplified tenfold, the trading volume also increases ten times, and the corresponding fees do too. More importantly, the exchange isn’t worried because they have an automatic liquidation mechanism.

That’s the key point of account liquidation. When the accumulated loss equals the initial actual capital — 10,000 yuan — the exchange will forcibly liquidate, recovering 90,000 yuan they lent out. At that moment, your capital is completely zero. That’s called burning out an account. He listened, mouth agape, eyes dazed with a mix of greed and fear. I knew a door had opened in his life, and he would never return to his original state.