Uncovering the risk of "explosion" in financial transactions: Bitcoin trading traps under ten times leverage
In the financial market, investors always pursue high returns. Among them, leveraged trading has attracted the attention of countless investors with its "small-scale risk-taking" characteristics. However, high returns are often accompanied by high risks, especially in the digital currency market full of uncertainty, such as Bitcoin trading. Today, let's take a deep look at what is "explosion" in leveraged trading and how it affects the fate of investors.
1. What is leveraged trading?
In ordinary transactions, you pay as much as you pay, such as a Bitcoin worth 50,000 US dollars, and you spend 50,000 US dollars to buy a Bitcoin. But in leveraged trading, you only need to pay a small part of the funds to buy more assets. For example, in a ten-fold leveraged transaction, you only need to pay 10% of the funds, that is, 5,000 US dollars, to buy a Bitcoin worth 50,000 US dollars. The remaining 90% of the funds are provided by the trading platform as your loan.
2. The charm and risks of leveraged trading
The charm of leveraged trading is that when the market trend is consistent with the direction you predicted, you can get several times the return. For example, if Bitcoin rises from $50,000 to $55,000, you only need to use $5,000 of principal to earn $10,000, which is equivalent to doubling the principal.
However, the risks are equally huge. Because once the market trend is opposite to your predicted direction, your losses will also be multiplied. For example, Bitcoin fell from $50,000 to $45,000. Although it only fell by 10%, under the ten-fold leverage, your $5,000 principal has been completely lost.
3. What is "explosion"?
When investors lose to a certain extent in leveraged trading, resulting in insufficient funds in their accounts to cover the loan, a "explosion" will occur. At this time, the trading platform has the right to force liquidation, that is, to sell the assets held by investors to repay their loans. If the value of the assets is not enough to repay the entire loan, the investor will also need to bear additional debt.
For example, in the above example, when Bitcoin fell to $45,000, your account funds were no longer sufficient to cover the loan. If Bitcoin continues to fall to $44,000, the trading platform will sell your Bitcoin to repay the loan.But even so, you still need to bear a debt of $1,000.
4. How to avoid "explosion"?
1. Set the stop loss point reasonably: In leveraged trading, it is very important to set a reasonable stop loss point. Once the market trend is opposite to the predicted direction, timely stop loss can reduce losses.
2. Use leverage with caution: Do not blindly pursue high leverage multiples. Although high leverage can bring high returns, it is also accompanied by high risks.
3. Understand market dynamics: Before trading, you must fully research and analyze the market to understand market dynamics and trends.
4. Maintain sufficient funds: It is very important to maintain sufficient funds in trading. Even if the market trend is opposite to the predicted direction, there will be enough funds to deal with risks.
In short, although leveraged trading can bring high returns, it is also accompanied by high risks. When participating in leveraged trading, investors must be cautious, fully understand market dynamics and trends, set stop loss points reasonably, and maintain sufficient funds to deal with possible risks.
As an investor who has been working in the currency circle for many years, I am willing to share my experience and insights with you. If you are interested in the cryptocurrency world but don't know where to start, you might as well follow my homepage and discuss the mysteries of the cryptocurrency world and future possibilities with me. Click on the avatar to find me.
