Leverage is very simple.
I will tell you a story and you will understand.
There are many pigs in the pig farm, each pig is currently worth 100 yuan. You think the price of pigs will increase in the future, so you want to buy a few and sell them when the price increases.
You have 100 yuan in your hand, but you are greedy and want to buy 2 pigs. At this time, you don’t have enough money, so you need to borrow money.
The pig farm tells you that I can lend you money, so you borrow 100 yuan from the pig farm, plus your own capital to buy two pigs in total.
At this time, your capital is only 100 yuan, but you can buy pigs worth 200 yuan, so at this time you are equivalent to 2 times leverage.
Now you have a simple understanding of leverage, let’s continue.
The pig farm definitely doesn’t lend you money for free. If the price of pigs falls, it must avoid losses on the 100 yuan lent to you. So he tells you that your 100 yuan principal becomes the margin. If you lose money, it will be deducted from your principal first.
For example, if the price of each pig drops to 50 yuan/head, then you have 2 pigs and have lost 100 yuan, which is equivalent to losing all your principal. At this time, in order to avoid losing their own money, the pig farm will force you to sell the two pigs and then take back the 100 yuan lent to you (this is forced liquidation).
At this time, you will find that you have no pigs and no money in your hands, which is a margin call.
Although the price of pigs has only dropped by 50%, your principal has lost 100%.
We exchange pigs for coins and pig farms for exchanges. The same principle applies: when you leverage to buy coins/contracts, you are actually looking for an exchange or other intermediary to borrow money. When you lose all your principal, they will force you to sell and take back your money. Even if it rises again in the future, it has nothing to do with you. Don't leverage at will. This is the secret to your survival in the market for a long time. If it rises too fast, it will definitely attract a large number of speculators who are eager to get rich. The better the market, the more greedy they will be. Once the market sentiment is incited, they will start to leverage, sell houses and cars off-site, borrow money to leverage; leverage directly on the market. Big Pie will actively purify the market and actively explode these leverages. Bitcoin disperses all these false and market-unhelpful wealth and returns them to every institution and main funds.
