A few days ago, someone close asked me about account liquidation, and at that moment I felt a bit uncomfortable because I had experienced that feeling myself. But oh well, just explain it to them so they understand, maybe it will help in some way.

Currently, there is a quite popular saying in the crypto community: you copy Trump, Trump copies your house. Haha, some also say the unluckiest people this year are those following Trump. Of course, when losing money, you have to blame yourself for not catching the market rhythm; no one else is to blame.

I must admit that Trump issuing digital currency has helped crypto quickly attract more attention. This year, during family gatherings, I received many questions about cryptocurrency trading. But I still try to avoid talking too much because I am still stuck in some positions, not making money, afraid of being asked questions that would embarrass me.

The more I fear, the more curious people become. A relative kept chasing me asking, "What is account liquidation?" Hearing that question, I shivered, almost dropping my cigarette. This topic is too sensitive; it brings back too many painful memories. But he was very persistent, waiting for me at the bathroom door, staring intently to ask more.

He said he had thought about it for a long time but still didn’t understand. If you buy cryptocurrencies, at most you only lose money, so how can an account be liquidated to zero? Clearly, he was comparing crypto to the traditional stock market.

Seeing that I couldn’t avoid it, I smiled and decided to explain. I put out my cigarette and started: "Alright, it’s actually very simple. Suppose you have 10,000 yuan. Can you buy Bitcoin worth 10,000 yuan?" He nodded. "When Bitcoin increases by 10%, you make 1,000 yuan. When it decreases by 10%, you lose 1,000 yuan. That’s called spot trading, like buying stocks normally, and your account won’t be liquidated."

"But the problem is with leveraged contract trading. It works like this: you borrow money to amplify your trading capital. For example, if you open a contract with 9x leverage, your 10,000 yuan becomes 100,000 yuan. When Bitcoin increases by 10%, you make 10,000 yuan profit instead of 1,000. Excited, right?"

"The exchange lends you 90,000 yuan because they earn more from trading fees. Your trading volume increases tenfold, and their fees also increase tenfold. And they have no risk because if you lose all your actual capital, they will automatically liquidate your position."

"But this is a double-edged sword. If Bitcoin drops by 10%, you will lose 10,000 yuan, equal to your entire actual capital. At that point, the exchange will force liquidation, recovering the 90,000 yuan they lent. That’s account liquidation. Your actual capital drops to zero."

He was stunned, unable to close his mouth for a long time. His eyes at that moment were a mix of greed, fear, and confusion. I knew that a new door had opened in his life, and he could no longer go back.