A user with high leverage conducts a 125x trade, and after closing the position, gains 4%, but why does the account show a loss of 8.5%?

Many people may have such questions: clearly, when engaging in high-leverage trading, a gain of 4% was made, why does the final account balance show a loss of 8.5%? The underlying reasons are not complex, but it is crucial for many beginners to understand this.

First, we need to clarify the basic principles of leveraged trading. When engaging in 125x leveraged trading, you are actually using a small portion of your capital to control a position significantly larger than your capital. For example, if you have $1,000 and use 125x leverage, you are actually trading a position of $125,000. Leverage magnifies your profits, but it also amplifies the risks.

In this situation, even if the market's fluctuations are small, the price movement will be magnified by 125 times. If you guessed the direction correctly and the market rises by 4%, your actual profit is 125 times 4%, which equals a 500% return. However, if the market moves slightly against your expectations, the losses will also be magnified, potentially exceeding your initial investment by a large margin.

Under high leverage, even if you achieve a 4% profit, the final account changes must also consider the "compounding effect" brought by leverage. Assuming you are using 125x leverage, this means your initial capital is actually "compressed"—you will only touch your actual capital if your account sustains a certain percentage of loss. For example, when the market fluctuates, even if you temporarily gain 4%, the actual account balance change is calculated according to the leverage multiple. You may have already "eaten away" part of your profits through other trades or slippage, or due to hidden costs like transaction fees and financial costs, leading to your profits being "devoured", so the final account balance shows a loss.

More importantly, the phenomenon of an 8.5% loss may be due to forcibly closing positions during a loss period, or because of severe market fluctuations leading to insufficient funds to maintain the original margin, resulting in forced liquidation. In high-leverage trading, even a small market fluctuation can quickly lead to forced liquidation of an account. Remember that once the capital position is too large and leverage is too high, even minor market fluctuations can amplify the magnitude of losses.