Today someone asked me what leverage is. I just spent dozens of minutes to sort out my own views for everyone, but I hope you don’t do contracts and leverage.
What is a margin call? If you still don’t understand, I will explain it to you
If a bitcoin is 50,000 US dollars, you spend 50,000 US dollars to buy a bitcoin, this is a normal transaction.
But there is another concept, which is leveraged trading. You still buy a bitcoin, this time you only need to pay 10%, 5,000 US dollars, and I will pay the remaining 90% for you. This is the so-called ten-fold leveraged transaction.
Of course, the 45,000 I paid for you is not given for free, but lent to you, and you must pay me back later.
If Bitcoin rises to 55,000, it is a 10% increase. You sell it, pay me 45,000, and you still make a net profit of 10,000. That is to say, your 5,000 principal has doubled directly.
Of course, if Bitcoin falls, falling to 45,000, you will face a problem. The remaining value is only enough to pay back the money I lent you. So although it only fell by 10%, with a 10x leverage, your own 5,000 is equivalent to losing all your money.
At this time, you say that you are sure that the price will go back up, and you don’t sell it, but hold on to it. Is that okay? Definitely not. You can hold on to your own money, but I borrowed your money, which is my money. Why should I hold on to it with you? What will you pay me back if it doesn’t go back up? So I have the right to sell the coins for you and take my 45,000 directly. Even if you sell slowly and Bitcoin falls to 44,000, then if you sell Bitcoin, not only will you lose all your money, but you will also owe me 1,000. This 1,000 is a debt that you must pay back. This is the so-called liquidation.
If you don’t want to liquidate at this time, you only have one choice, which is to cover your position. For example, if you add another 5,000 to your account, the value of your cash plus Bitcoin will exceed 45,000, and I will feel relieved.
After six years of deep involvement in the cryptocurrency industry, the cryptocurrency industry is full of infinite possibilities. See my pinned post. Welcome everyone to discuss it together.
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