When it comes to cryptocurrency trading, many people's first reaction is 'huge ups and downs,' and amidst these ups and downs, high leverage has become a tool for instant wealth, as well as the culprit of countless family tragedies. Some say, 'Without leverage, you can't make big money.' But reality tells us that most people who use leverage end up losing everything.
Why did this happen? Let me tell you a few stories, and you will understand.
Story 1: From financial freedom to heavy debt.
Xiao Li is an ordinary office worker who came into contact with cryptocurrency in early 2020. He was lucky enough to turn tens of thousands into hundreds of thousands through spot trading. He began to think he had 'talent,' so he switched to the futures market. He felt that making money in spot trading was too slow, and only leverage could double his wealth.
At first, he was very cautious, only using 2x or 3x leverage, occasionally earning a few thousand. Later, he became bolder and started using 10x or 20x leverage. He tasted the sweetness: as long as the direction was right, the numbers in his account skyrocketed like a rocket. In one bet, he used 100,000 as principal and opened 20x leverage, instantly earning 400,000!
But what followed was a sudden flash crash. During a market adjustment, his leveraged position was liquidated; not only did he lose all his previous profits, but he also lost a significant portion of his principal. He was unwilling to accept this and continued to invest more money trying to 'make up for it,' resulting in another liquidation. In the end, Xiao Li not only lost all his savings but also owed over a hundred thousand in credit card debt.
Story 2: An overnight total collapse.
Old Wang is a seasoned trader with years of stock trading experience and substantial capital. When he entered the crypto market, he believed he could definitely 'cut the leeks' and completely disregarded the risks of contracts.
One day, he was optimistic about Bitcoin's future and believed 'this wave will definitely reach 100,000.' He opened a long position with 500,000 at 30x leverage, filled with confidence. Unfortunately, Bitcoin did not go as he wished and instead experienced a significant drop. During the decline, he was still 'averaging down,' thinking 'as long as I can withstand this volatility, I can double my money.' But the market did not give him a chance, and it eventually fell below his liquidation line, instantly wiping out his 500,000.
After the liquidation, Old Wang was in great pain; he realized he could never recover this money.
Why is high leverage so terrifying?
1. Amplifying profits also amplifies risks.
Leverage allows you to control a larger market share with a small amount of capital, but it also means that the market only needs to fluctuate slightly for your principal to vanish into thin air. For example, with 20x leverage, if the market drops by just 5%, your principal will be liquidated.
2. The market is always unpredictable.
The volatility of the crypto market is extremely high; a single message or panic can cause the market to reverse instantly. What you think is an 'absolute opportunity' may actually be an endless abyss.
3. Human greed and fear.
Leverage can make people greedy, always wanting to earn more, thus overlooking risks. Once the market turns against you, human fear can leave you at a loss, leading to poor decisions.
4. The rules of the exchange's game.
Many exchanges are essentially 'liquidation machines'; they profit from fees and liquidations. The more frequently you trade and the more leverage you use, the more they earn. And you are merely their 'leek.'
Don't let leverage destroy your life.
Some say, 'You can't make money without leverage.' But have you ever thought that surviving is more important than how much money you make? High leverage can indeed help you make quick money, but it can also leave you bankrupt overnight. And most of the time, you cannot bear this risk.
The crypto market is already high-risk enough; the volatility in spot trading can cause your heart to race, so why add leverage on top of that? Remember, wealth accumulation is a long-term process; money won by gambling will eventually be lost to gambling.
Remember: those who want to make quick money often end up losing it even faster. If you really want to survive in the crypto market, protecting your principal and being steady is the way to go. Stay away from high leverage, and don’t let greed ruin everything for you.
