Why did the position explode? Let me tell you a story

At the chicken farm, each chicken is worth 100 yuan. You firmly believe that the price of these chickens will increase in the future, so you plan to buy a few and wait for the appreciation.

But the reality is that you only have 100 yuan on hand, but you want to own two chickens, and greed drives you to borrow money from the chicken farm.

The chicken farm generously said that it could lend you money, so you borrowed 100 yuan, plus your own principal, and finally bought two chickens.

At this moment, your principal is only 100 yuan, but you own chickens worth 200 yuan. Congratulations, you have entered the ranks of 2x leverage.

But don't forget that the chicken farm is not a philanthropist. If the price of chickens falls, they will first ensure that the 100 yuan they lent will not be damaged. Therefore, your 100 yuan principal becomes a margin. Once a loss occurs, it will be deducted from your principal first.

Suppose the price of each chicken plummets to 50 yuan, and your two chickens instantly lose 100 yuan - your principal is completely evaporated. At this point, the chicken farm will sell your chickens without hesitation and take back the 100 yuan loan (this is called "forced liquidation") in order to protect itself.

What is the result? You are left with nothing, not even a chicken feather. This is a margin call! Although the price of chickens has only fallen by half, your principal has been completely lost.

Now, replace the chickens with digital currency and the chicken farm with an exchange. When you leverage to buy coins, you are actually borrowing money from an exchange or other intermediary. Once your margin is exhausted, they will ruthlessly sell your coins and take back their money. If the price of the coin rises in the future, it has nothing to do with you.

Don't be blinded by greed. Random leverage will only make you go further in the market. The real winners are those investors who act cautiously and do not leverage easily. Don't let temporary enthusiasm and greed ruin your future!

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