Recently, many beginners still have a somewhat vague understanding of leveraged trading. Let me explain how this thing actually works and share some of the darker stories behind it.

Starting from the basics. Suppose Bitcoin is now $50k each. You buy one directly with $50k, and that's a regular trade—nothing special. But leveraged trading is different. If you buy one Bitcoin with the same $50k, you only need to put in $5,000, and I will cover the remaining $45,000 for you—that's ten times leverage. Of course, the money I cover isn't free; it's borrowed, and you have to pay it back later.

Now, if Bitcoin rises to $55k—only a 10% increase—your $5,000 principal doubles. After selling, paying back the $45,000, you still net a profit of $10,000. Sounds great, right? But the problem is, the market doesn't always go up.

What if Bitcoin drops to $45,000? That's a 10% decline, but with ten times leverage, your $5,000 is basically gone. At this point, you might think to hold on and wait for the price to rebound. But I won't let you hold like that. The $45,000 I lent you is my money. Why should I gamble with you? If the price keeps falling, how do I get my money back? So I have the right to sell your coins directly and recover my funds. If I sell slowly and Bitcoin drops to $44,000, not only do you lose everything, but you also owe me $1,000. This is called a liquidation—your position gets forcibly closed, and you still owe money.

Want to avoid liquidation? The only way is to add more margin. For example, you deposit another $5,000 into your account, so your cash plus the value of your coins can cover my loan again, and I can rest assured.

But that's not even the scariest part. I want to tell a real story that actually happened, just to clarify—this isn't about Bitcoin.

In China, there used to be many fake commodity exchanges. Unlike those sites that just fake data, these platforms' data—volume, prices, candlestick charts—are all real. But even so, investors can still be scammed out of their money.

The method is actually quite simple. Suppose a ten-times leverage product—let's call it "Chives"—the current price is $50k per bundle. The platform has many traders, some long, some short, all holding positions at this price. This is key: the exchange has full knowledge of all investors' positions—who's long, who's short, how much cash they still have, and their leverage ratios.

Then, on a dark, windy night, the exchange teams up with some powerful market makers, ready with large funds, and can wipe out all traders. Why does it have to be midnight? Because most investors are asleep. How can you react quickly to add margin if you're sleeping?

In the middle of the night, the market makers start aggressively buying, pushing the price of Chives up to $55,000. At this point, those with full positions and no cash in their accounts—shorts with ten times leverage—are immediately liquidated. The investors are still asleep and can't react in time; their positions are automatically forced to close. This operation costs very little because most people are sleeping, and only a small amount of capital is needed to push the price higher. The subsequent forced liquidations of shorts automatically create new buy orders, helping the market makers continue to raise the price.

As the price keeps rising, more investors with only a little cash and leverage of 8x or 9x get wiped out. The market makers use a small amount of capital to snowball and liquidate shorts at various leverage levels. Suppose the price goes from $50k to $75k—more than five times leverage shorts get liquidated. Where does that money go? If the market maker also uses ten times leverage, buying at $50k and selling at $75k, they can make a 4x profit.

Even more ruthless, after liquidating shorts, the market maker can turn around and short the market. Now, they start aggressively shorting, dumping coins to crash the price. Since the rise from $50k to $75k was driven up by the market maker themselves, there aren't many follow-up traders. Shorting with leverage can also be profitable—short from $75k back down to $50k, which isn't difficult. Increase the funds again and do the reverse operation: crash from $50,000 to $25k. This time, those long positions with over 5x leverage are all liquidated. The market maker buys back at a lower price, making another profit.

See? All these trades are real, with no fakes. It just requires much larger capital than retail traders, plus detailed knowledge of retail traders' trading data—knowing their entry prices, position sizes, leverage ratios, and when they are inactive—allowing precise targeting. Retail traders get liquidated whether they go long or short, while the market maker profits handsomely.

To emphasize again, this story isn't about Bitcoin itself but about unregulated, shady exchanges. After all, Bitcoin is so legitimate—how could there be market makers? How could 20% of people control 80% of the coins? And Bitcoin is so secure—how could wallets and exchanges use trading data to scam money?

In short, Bitcoin is good, and liquidation is a normal market event—there's no conspiracy.

If you want to develop long-term in the crypto space but still feel a bit lost and want to get started quickly, check out my profile. We can exchange ideas and provide a learning platform. If possible, I’ll also share some strategies for futures and spot trading. But please don't ask me right away which coin I think will do well or how to make money with a certain coin—I really don't know. I hope our encounter can always stay true to the original intention.