What exactly is a margin call?
Let’s clarify the truth behind "leveraged trading" all at once!
Main content:
Many beginners have heard the term "margin call," but they don’t understand what it means.
Today, I’m going to explain in simple terms what a margin call really is.
1. First, let's look at regular spot trading:
You spend $50,000 to buy one Bitcoin.
If the price goes up, you make money; if it goes down, you lose money, but as long as you don’t sell, it won’t go to "zero."
2. What is leveraged trading?
You still want to buy one Bitcoin, but this time you only put up 10%—that is, $5,000, and I lend you the remaining 90% ($45,000).
This is ten times leverage; you use $5,000 to leverage a trading amount of $50,000.
3. If the price goes up:
For example, if Bitcoin rises to $55,000, a 10% increase.
After you sell, deducting the $45,000 I lent you,
you net $10,000, effectively doubling your principal!
This is the charm of leverage—quick profits and high returns.
4. But if the price goes down:
Assuming it falls to $45,000, a 10% drop.
At this point, the coin you hold is worth $45,000, which is exactly what I lent you.
Am I still willing to let you hold it? Of course not.
What I want is "capital safety"; whether you lose or not is your business,
I must immediately force a liquidation, sell the coins, and recover the money I lent.
What’s the result?
Your $5,000 principal is completely lost.
You’ve been "liquidated."
5. What if you don’t want to sell?
You say: "I believe it will go back up; can I not sell?"
Of course not.
You can hold with your own money, but you can’t hold with my money.
Once it falls below the liquidation line, I have the right to directly liquidate your position and reclaim the money lent.
This is the core rule of leveraged trading.
6. After a liquidation, could you still owe money?
If it falls too quickly, say directly to $44,000, and you don’t have time to sell,
after selling, if it’s not enough to repay what I lent,
you not only lose your principal but also owe me $1,000!
At this point, you’re not just wiped out; you’re also in debt.
7. To avoid liquidation, there’s only one solution: adding funds.
You add money to your account, for example, another $5,000,
so that I see your account's total value has returned above the safety line,
and I won’t touch your position.
