What is leverage?

Bitcoin is 50,000 US dollars per bitcoin. You spend 50,000 US dollars to buy one bitcoin. This is a normal transaction.

But there is another concept, which is leveraged trading. You still buy one 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-fold leveraged transaction, that is, the contract.

Of course, the 45,000 I pay for you is not given for free. It is lent to you, and you must pay me back later.

If Bitcoin rises to 55,000, it is a 10% increase. You sell it and pay me 45,000. You still make a net profit of 10,000. In other words, your 5,000 principal has doubled directly.

Of course, if Bitcoin falls to 45,000, you will face a problem. The remaining value is only enough to pay back the money I lent you. So although it has only fallen by 10%, under the ten-fold 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. You don’t sell it and hold on. Is it okay? Definitely not. You can hold on to your own money, but I borrow your money. That's my money. Why should I hold on to you? What will you use to pay me back if the price doesn't go up? So I have the right to sell the coins for you, and then take my 45,000 directly. Even if you sell slowly and Bitcoin falls to 44,000, then if you sell 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 pay back, which is the so-called liquidation.

If you don't want to liquidate at this time, you have only one choice, 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 exceed 45,000 again, and I will be relieved.

As an investor who has been working in the cryptocurrency circle for many years, I am willing to share my experience and insights with you. If you are interested in the cryptocurrency circle, but don't know how to start, you might as well follow my homepage and discuss the mysteries and future of the cryptocurrency circle with me.