Chicken farm business and digital currency trading

For example, you go to a chicken farm and want to buy chickens. Each chicken sells for 100 yuan. You think the price of chickens will rise, so you want to buy a few and wait to sell them to make money.

The problem is that you only have 100 yuan on hand, but you want to buy two chickens. So, you decide to borrow money to buy them.

The chicken farm is happy to lend you money, you borrow 100 yuan, plus your own 100 yuan principal, and finally you buy two chickens.

Now, you only have 100 yuan, but you have two chickens worth 200 yuan. You have joined the 2x leverage.

But remember, the chicken farm is not doing charity. If the price of chickens falls, they will first ensure that the 100 yuan they lent you will not be damaged. This means that your 100 yuan principal will become a margin. Once a loss occurs, it will be deducted from your principal first.

For example, if the price of each chicken falls to 50 yuan, your two chickens will immediately lose 100 yuan - all your principal will be gone. At this time, in order to protect themselves, the chicken farm will sell your chickens and take back the 100 yuan credit (also known as "forced liquidation").

The result is that you have nothing, not even a feather. This is liquidation! Although the price of chickens has only fallen by half, your principal has been completely lost.

Now exchange the chickens for digital currency and the chicken farm for the exchange. When you use leverage to buy coins, you are essentially borrowing money from the exchange. Once your deposit is used up, they will not hesitate to sell your coins to get the money back. The price of a certain currency will rise again in the future, which has nothing to do with you.

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