Recently, someone asked me what leverage trading really means, so I’ll explain it clearly for everyone.

Imagine you’re bullish on Bitcoin, and it’s now $50k each. If you have $50k, you can buy one directly—that’s regular trading. But leverage trading works differently. You only need to put in $5,000, and I’ll cover the remaining $45k for you—that’s ten times leverage. Of course, the money I cover isn’t free; I lend it to you, and you have to pay it back later.

If Bitcoin rises to $55k, you make a 10% profit. Sell and pay me back $45,000, your $5,000 doubles—feeling great, right? But what if it drops to $45,000? Your $5,000 is gone instantly. At this point, you might think the price will bounce back and don’t want to sell. But you can’t—because that $45,000 is my money. Why should I gamble with you? So I have the right to sell your coins directly and take back my principal. If I sell slowly and Bitcoin drops to $44k, not only do you lose everything, but you also owe me $1,000. This $1,000 is debt—that’s what liquidation means—you lose your money and still owe.

The only way to avoid this is to add more funds to your account, say another $5,000, so your capital is sufficient, and I won’t forcibly liquidate your position.

But here’s a darker story. There used to be a bunch of fake exchanges in the country—not just fake data, but all data was real, yet they could still wipe out retail investors completely.

The exchange knew each investor’s holdings, funds, leverage ratio, and even who was long or short. Late at night, when most people were asleep, the house, in collusion with the exchange, prepared large sums of money to aggressively go long, pushing the price from $50k to $55k. At this point, short investors with full positions and ten times leverage were on the brink of liquidation, but since they were sleeping, they couldn’t add to their positions, and their coins got forcibly liquidated.

This doesn’t require much money because most people are asleep. As the price continued rising to $75k, all short positions with over five times leverage got liquidated. Assuming the house also used ten times leverage, closing positions from $50k to $75k would net a fourfold profit.

The most impressive part is that the house can also reverse the operation after shorting. They can aggressively short again, crashing the price from $75k back down to $50k. At this point, there aren’t many followers. Then, they increase their funds further to push the price down to $25k, causing all investors with over five times leverage who went long at $50k to be liquidated again. The house buys back at the lower price, making huge profits.

Retail investors, whether long or short, get wiped out. All the trading data is real—just requiring larger capital and insider information—knowing retail investors’ positions, leverage, and inactive periods. Precise targeting and liquidation are artificially manufactured like this.

Of course, I’m not talking about Bitcoin here, just about shady, unregulated exchanges in the black market. Bitcoin is so legitimate—where’s the house? Who controls most of the chips? Plus, it’s so safe—who would cheat money through trading data? Anyway, liquidation always happens under normal market conditions; there’s definitely no conspiracy.

If you want to find your way in the crypto world, welcome to chat. I have a profile with an introduction, and we can learn from each other. If possible, I’ll share some ideas on futures and spot trading setups. But don’t come asking me which coin I think will make money—that’s a question I really can’t answer. I hope our encounter can stay true to the original.