What is a margin call? You will understand it after reading this!
The chickens in the chicken farm are worth 100 yuan each. You think the price of chickens will increase, but you still want to buy two for 100 yuan. Greed makes you borrow money from the chicken farm.
The chicken farm agrees to lend you 100 yuan, so you use 100 yuan principal plus the borrowed 100 yuan to buy two chickens, and you use 2 times leverage.
But the chicken farm is not a good person. If the price of chickens falls, they have to guarantee that the money they lent out is fine. Your 100 yuan principal is the margin. If you lose money, it will be deducted from your principal first.
If the price of chickens falls to 50 yuan each, you lose 100 yuan on two chickens, and the principal is gone. The chicken farm will sell your chickens for money to recover the loan. This is forced liquidation, and you will lose everything in the end.
The same is true for digital currencies and exchanges. If you buy coins with leverage, you are borrowing money from the exchange. If the margin is gone, they will sell your coins to pay back the money.
Don't be greedy and add leverage, otherwise it will be miserable. The real winners are careful people. Don't let greed ruin you!
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