A newbie who just entered the circle asked what leverage is? Here, the God of War will give you an answer!
For example, imagine that you walked into a mysterious digital currency market and saw the glittering Bitcoin, each worth 50,000 US dollars. You excitedly took out 50,000 US dollars and bought a Bitcoin. This is the most common way of trading.
But in this mysterious market, there is a more exciting way to play, called "leverage trading". It is like a magic magnifying glass that allows you to buy more Bitcoins with less money.
For example, you still want to buy a Bitcoin, but this time you only need to pay 10%, which is 5,000 US dollars. The remaining 90%, which is 45,000 US dollars, is lent to you by the "magician" in this market. In this way, you are like using a ten-fold magnifying glass. Although you only pay 5,000 US dollars, you can buy a complete Bitcoin.
But don't forget that this 45,000 US dollars is not given to you for free, but you borrowed it and you will have to pay it back in the future.
Now, if the price of Bitcoin rises to $55,000, and you make 10%, after selling it, in addition to paying back the $45,000 you borrowed, you also make a net profit of $10,000! Does it feel like your $5,000 principal has doubled instantly?
But there are always two sides to things. If the price of Bitcoin falls to $45,000, it will be a bit troublesome. Because at this time, the Bitcoin in your hand plus the cash is just enough to pay back the $45,000 loan. Although Bitcoin has only fallen by 10%, under the effect of ten times leverage, your $5,000 seems to have evaporated.
You may say: "I believe the price will go back up, I won't sell it, I'll just wait for it to go up!" But unfortunately, this doesn't work. Because the $45,000 is the "magician's" money, not yours. What if the price really can't go back up, what will you give him back? Therefore, the "magician" has the right to sell your Bitcoin when the price falls to a certain level, and then take his money.
If Bitcoin falls too fast, for example, to $44,000, then after selling Bitcoin, not only will you not make a penny, but you will also owe the "magician" $1,000. This $1,000 is a debt that you must pay back. This is the so-called "margin call."
To avoid margin calls, you have only one choice, which is to "cover your position."For example, if you deposit another 5,000 US dollars into your account, the value of your cash plus Bitcoin will exceed 45,000 US dollars, and the "magician" will let you continue to play with confidence.
This is the magic and risk of leveraged trading. It can make you rich overnight, but it can also make you lose everything in an instant. Therefore, before entering this mysterious and exciting digital currency market, you must understand the rules clearly.
The risks and opportunities of the currency circle coexist. If you have not found the right team and leader, click on the avatar to find me, and I will share free dry goods and strategies with you. Remember, opportunities are always reserved for those who are prepared.
