What is leverage?

Bitcoin costs 50,000 US dollars each. You spend 50,000 US dollars to buy a Bitcoin. This is an ordinary transaction.

But there is another concept called leveraged trading. You still buy a Bitcoin, this time you only need to pay 10%, 5,000 US dollars, and I will pay the remaining 90% for you. This is the so-called ten times leverage transaction, which is a contract.

Of course, the 45,000 I paid for you was not free, it was lent to you, and you must pay it back to me later.

If Bitcoin rises to 55,000, which is an increase of 10%, you sell it and return 45,000 to me, and you will still make a net profit of 10,000. In other words, your principal of 5,000 is directly doubled.

Of course, if Bitcoin falls to 45,000, you will face a problem. The remaining value is only enough to repay the money I borrowed from you. So although it only dropped 10%, under ten times leverage, your own 5,000 is equivalent to losing all your money.

At this time, you say that you are sure that the price will rise back. If you don't sell, just hold on, okay? Definitely not. You can hold on to your own money, but if I borrow your money, it's my money, so why should I hold on to you? What will you give me back if the money doesn't come back? So I have the right to sell the coins for you and take my 45,000 directly. Even if the sales are slow and the Bitcoin price drops to 44,000, then if you sell the Bitcoin, not only will you lose all your money, but you will also owe me 1,000. This 1,000 is a debt that you must repay. This is the so-called liquidation.

If you don’t want to liquidate your position at this time, you have only one option, which is to cover your position. For example, if you add another 5,000 to your account, the value of your cash plus Bitcoin will be more than 45,000. I feel relieved. $BTC