I want to talk with everyone about leverage trading, especially the logic behind liquidation, because many people haven't truly understood what happens behind the scenes.

Let's start from the basics. Suppose Bitcoin is $50k each, and you buy one with $50k in cash—that's a regular trade, very simple. But what if you use leverage? Same purchase of one Bitcoin, but you only need to put up $5,000, and the remaining $45,000 is covered by me—that's tenfold leverage. Sounds tempting, right?

The problem is, that $45,000 isn't given to you for free; it's borrowed. Suppose the price of Bitcoin rises to $55k, a 10% increase. When you sell and pay me back the $45,000, you still net a profit of $10k. That's equivalent to doubling your $5,000 principal. At this point, you probably think leverage trading is amazing.

But what if the price drops to $45,000, a 10% decline? Now, the remaining value is just enough to pay back the borrowed money, and your own $5,000 is essentially gone. This is the starting point of liquidation. You might want to hold on and wait for a rebound, but why should I gamble with you? My money is at risk—what if the price doesn't bounce back? How can you repay me then? So I have the right to sell your coins directly and take my $45,000. If I sell slowly and the price drops to $44,000, not only is your principal gone, but you also owe me $1,000. That’s real liquidation—$1,000 in debt that you must repay.

To avoid liquidation, the only way is to add more margin. You deposit an additional $5,000 in cash into your account, so your total assets plus cash exceed $45,000 again, and the risk is thus mitigated.

Now, let me tell a more interesting story. In China, there used to be many so-called commodity exchanges, and unlike those scam sites that produce fake data, these platforms' trading data are all real. Yet, they still manage to wipe out investors completely.

The method is actually quite simple. For example, a product with tenfold leverage—let's call it "leek"—trading at $50k per bundle. The market has both long and short positions, with large open interest. The exchange controls all traders' position data, knowing your account funds, leverage ratio, and even when you might add margin.

As long as they pick a dark, windy midnight, the exchange, together with some well-funded market makers, can start harvesting. Why midnight? Because most retail traders are asleep, unaware of price changes, and can't add margin in time.

At midnight, the market makers start aggressively going long, pushing the leek price from $50k to $55,000. At this point, the short traders with full positions and tenfold leverage are on the brink. But they are still sleeping, unaware of what’s happening, and liquidation is automatically triggered. This process doesn't cost much because there are few participants, so the required capital is small.

Even more cleverly, these liquidated short orders automatically turn into buy orders, effectively helping the market makers push the price higher. As the price continues to rise, traders with nine or eight times leverage who kept some cash also start to get liquidated. The market makers then snowball, using very little capital to push the price all the way up to $75k. By this time, all shorts with more than five times leverage are liquidated.

Where does the money from liquidations go? It all goes into the market makers' pockets. Suppose the market makers also use tenfold leverage; closing positions from $50k to $75k, they can earn four times their capital as pure profit.

The most ruthless part is that after liquidating the shorts, the market makers can flip and start shorting again. Now they begin to aggressively sell off, pushing the price down. Since the price from $75k back to $50k was driven up by the market makers themselves, there won't be many follow-up traders. Dropping from $75k to $50k is not difficult. Then, they increase their capital again and reverse the operation, smashing the price from $50k down to $25k. At this point, all traders with more than five times leverage on the long side are liquidated again. The market makers then buy to close their positions, completing the harvest.

All these trades are real, with no fakery. It just requires much larger funds than retail traders, insider information on retail traders' trading data—knowing your entry prices, positions, leverage ratios—and timing the market when retail traders are inactive, to precisely target and trigger liquidations. No matter if retail traders go long or short, they can't escape liquidation, and the market makers profit immensely.

This story isn't about Bitcoin; it's about those unregulated, unscrupulous trading platforms in the black market. After all, legitimate exchanges wouldn't do this. I hope everyone keeps these risks in mind when trading, especially when using high leverage.