Over the past few days, I’ve come across a few posts about “account burn.” Remembering the Lunar New Year just gone, I was also asked about this by a family member. At that time, I was still trapped in a position, so when I heard the question “what is an account burn,” I panicked and almost ran away.

But then I realized that maybe many people still don’t really understand the difference between spot trading and contracts. So today, I decided to explain it to everyone to avoid costly mistakes.

Put simply, if you have 10,000 yuan and buy bitcoin directly, and bitcoin rises 10%, then you profit 1,000 yuan; if bitcoin falls 10%, you lose 1,000 yuan. That’s normal trading—just like buying stocks—there’s no such thing as an account burn.

But when you trade with contracts, leverage comes into play. You still only have 10,000 yuan, but the exchange lends you 90,000 yuan to trade. At this point, you have 100,000 yuan to buy bitcoin. If bitcoin rises 10%, the profit you make is 10,000 yuan—10 times more than before. Sounds tempting, right?

But everything has two sides. If bitcoin drops 10%, you’ll lose 10,000 yuan. That is your entire real capital. At this point, the exchange will be forced to liquidate your position—cutting your losses to recover the 90,000 yuan they lent you. This is what an account burn is: your real capital goes to 0.

So why would an exchange be willing to lend you money? Because they don’t take the risk of losing. When your capital is amplified 10 times, your trading volume also increases 10 times, and the trading fees you contribute increase accordingly. And when you lose all your real capital, they automatically sell everything to protect their loan.

So now you get it, right? What is an account burn? It’s the price you pay for using leverage without controlling the risk. This year, many people have asked me about crypto, but I always emphasize this first. Because only by understanding what an account burn is can you avoid it.