Uncover the truth about margin call: the double-edged sword of leveraged trading
Have you ever been confused by the word "margin call"? Don't worry, today we will use the simplest and most understandable way to give newbies a vivid financial lesson!
Imagine that Bitcoin, the mysterious digital currency, is now shining with the light of $50,000. You hold $50,000 in your hand and buy a Bitcoin without hesitation. This is the most basic transaction, simple and clear.
But do you know? There is a more exciting way to play-leveraged trading! It is still the same Bitcoin. This time you only need to pay 10% of the "deposit", which is $5,000, and I, as the "behind-the-scenes financier", will generously lend you the remaining $45,000, which will instantly increase your purchasing power tenfold! This is the charm of leverage and the beginning of risk.
But please remember that the $45,000 I lent you is not a charitable donation. It has interest, and more importantly, you must repay it in full in the future.
Suppose the goddess of luck favors you, and Bitcoin soars to $55,000, an attractive increase of 10%. You decisively sell Bitcoin, repay my $45,000 loan first, and the remaining $10,000 is your net profit! Look, the principal of $5,000 has doubled directly, isn't it tempting?
However, the market is always unpredictable. If Bitcoin falls to $45,000 instead of rising, the situation will take a sharp turn for the worse. At this time, you find that the money from selling Bitcoin is just enough to repay my loan, but your principal is gone, which is the double-edged sword effect of leveraged trading.
What's worse is that if you firmly believe that the price will rebound and choose to hold on to it, you are making a big mistake. Because the money lent to you is not my spare money, but my real investment. Once the price continues to decline, I have the right to sell Bitcoin for you and recover the loan in order to protect my own interests. If Bitcoin has fallen to $44,000 by then, you will not only lose all your principal after selling it, but also be in debt of $1,000.
So, dear investors, although leveraged trading is tempting, the risks should not be ignored. While pursuing high returns, please be sure to carefully assess your risk tolerance and do not blindly follow the trend to avoid falling into the abyss of liquidation.
