Recently, I’ve been thinking about a question: why do so many people end up losing everything in leveraged trading? Ultimately, it’s because they don’t truly understand what a liquidation (爆倉) really is.

Let’s start with the simplest example. Suppose Bitcoin is $50k each, and you buy one with $50k—that’s a regular trade. But leveraged trading is different. If you buy one Bitcoin with leverage, you only need to put up 10%, which is $5,000, and I’ll cover the remaining $45k for you. That’s tenfold leverage. Of course, the money I lend you isn’t free; it’s borrowed, and you’ll have to pay it back later.

Now, if Bitcoin rises to $55k—up 10%—you sell and pay me back $45,000, leaving you with a net profit of $10k. That’s like doubling your $5,000 initial capital. Sounds great, right? But on the flip side, it can be disastrous. If Bitcoin drops to $45,000—down 10%—your $5,000 is wiped out under tenfold leverage. At this point, do you want to wait for it to bounce back? No way. The money I lent you is my hard-earned cash. Why should I gamble with you? I have the right to sell the coins directly and take my $45,000 back. If I sell slowly and Bitcoin drops to $44k, not only do you lose everything, but you also owe me $1,000. That $1,000 becomes your debt—that’s what liquidation (爆倉) means.

At this point, many will ask: how can I avoid liquidation? There’s only one way: add more funds to your account, known as “margin replenishment.” For example, deposit another $5,000, so your total cash plus Bitcoin’s value exceeds $45,000 again, and I’ll be reassured.

But here’s where things get really dark. I’ve seen many people get completely wiped out on unregulated, unscrupulous exchanges. The trading data might all be real, but they can still be scammed to lose everything. The method is actually quite simple.

Imagine a product with tenfold leverage—what exactly it is doesn’t matter, let’s just say it’s some commodity. The current price is $50k, and there are many long and short positions in the market. The exchange knows all traders’ positions, how much money they have, and their leverage ratios.

Then, the exchange teams up with some powerful market makers, and on a dark, windless night—when most retail traders are asleep—they start aggressively buying long positions, pushing the price from $50k to $55k. At this point, those with full positions and no cash—shorts with tenfold leverage—are immediately liquidated. They’re still sleeping and can’t react in time to add margin. Their positions are forcibly closed. It doesn’t take much money to push the price higher because most traders are offline.

As shorts are liquidated, the system automatically generates new buy orders, helping the market makers continue to push the price up. The price keeps climbing, and investors with ninefold or eightfold leverage also start getting liquidated. In the end, the market makers spend very little to drive the price from $50k to $75k, making a fourfold profit.

Where does the money from these liquidations go? It all goes into the market makers’ pockets. They themselves are also using tenfold leverage—closing positions from $50k to $75k nets them a 4x profit.

Even more astonishing, after shorting, the market makers can reverse their positions. They start aggressively shorting, pushing the price back down from $75k to $50k. Since the previous rise was mainly driven by their orders, with little follow-through, it’s not hard to smash the price down. They can even increase their capital and drive the price from $50k all the way down to $25k. At this point, all the traders holding long positions with fivefold leverage or more are liquidated again. The market makers buy back at a profit, raking in huge gains.

All these trades are real—what’s needed is a much larger capital pool than retail traders, plus insider information about their positions, entry prices, leverage ratios, and inactive periods. This allows them to precisely target and liquidate retail traders. Whether retail traders are long or short, they get liquidated, while the market makers keep making steady profits.

This is why so many people get wrecked in leveraged trading. The risks are always greater than you imagine, and liquidation stories happen every day. If you plan to enter this game, you must have a deep respect for leverage; otherwise, the cost can be devastating.