Recently, I’ve been pondering a question: why is leveraged trading so easy to get liquidated? Basically, it’s because the risk is infinitely amplified.

Suppose Bitcoin is $50,000 each, and you use $5,000 to open a tenfold leverage position; the exchange borrows you $45,000. When the price rises to $55,000, your $5,000 principal doubles, and you feel like a genius. But conversely, if the price drops to $45,000, your $5,000 is gone. Even worse, if it drops to $44,000, you still owe the exchange $1,000. That’s liquidation — your margin is completely wiped out, and you end up owing money.

It seems like a simple mechanism, but there are many tricks hidden behind it. I’ve heard stories about some illegal exchanges that once existed domestically. How did they operate? The exchange controlled all investors’ position data, funds, leverage ratios, and even knew when you were sleeping. On dark, windy nights, a few big players would team up and pour money into the market, wildly pushing up the price of a certain asset. Most retail investors were still asleep, with no chance to add to their positions, and they got liquidated.

The clever part is that the liquidated retail traders automatically create new buy orders, helping the big players continue to push the price higher. One after another, the tenfold leveraged positions get liquidated, then nine times, then eight. The big players can use very little capital to snowball and wipe out all the short sellers. For example, if the price is pushed from $50,000 to $75,000, all shorts with more than five times leverage get liquidated, and the big players can earn four times just from this wave.

And then? The big players reverse their position and short again, pushing the price back down. There aren’t many follow-up traders because the big players are the ones pushing it up in the first place. This time, from $75,000 down to $25,000, retail longs get liquidated again. All the trading data is real, but insiders can precisely target those who don’t know.

Of course, I need to clarify that these stories happen on unregulated, shady exchanges. But it also reminds us that whenever trading involves liquidation mechanisms, we must have enough respect for the risks. Leverage is like a double-edged sword — it can make money quickly, but losses can be just as rapid. Instead of blindly chasing high multiples, it’s better to accumulate experience steadily.

If you’re also exploring the crypto space, welcome to exchange ideas. I have some thoughts on my homepage, and we can discuss contract and spot trading strategies if you’re interested. But please don’t ask me whether a certain coin can make money — I really don’t know. I hope our exchanges stay true to their original intentions.