The blood and tears of the crypto world are hidden in the double-edged sword of leverage.
"Sister, my 8000U account has been wiped out!" At two in the morning, my cousin's voice message from Hangzhou popped up, trembling. He opened a long position with more than 3x leverage, and the market only retraced slightly by 2.5%, resulting in a direct liquidation.
I took a glance at the trading records he sent—95% of the funds were fully invested, without even setting the most basic stop-loss line. This scene is so familiar; I also experienced two full-margin liquidations at the beginning of the year, losing nearly half of my principal.
But today, I have already used three iron rules to increase my net value by 70% within four months.
01 The market is turbulent, and liquidations happen frequently
In the recently concluded October to December period, the cryptocurrency market experienced epic volatility. Bitcoin reached an all-time high of 126,300 dollars in October, only to plunge 31% within two months, falling below 87,000 dollars.
In this crash, over 190,000 people were liquidated, with a total liquidation amount reaching 553 million dollars. This is merely a reflection of the high leverage risks in the market.
In another wave of market activity in early October, there were 100,000 users liquidated within 24 hours, with the largest single liquidation amounting to 7,374,600 dollars. Market analysts generally believe that the main reasons for these liquidations include extreme market price fluctuations, the use of high-leverage trading, and insufficient market liquidity.
Leverage is a double-edged sword. While it amplifies profits, it also proportionally amplifies losses. For example, under 10x leverage, a 10% price reversal can lead to a total loss of margin. During extreme market fluctuations, the 'spike' phenomenon can instantly breach the liquidation line, causing investors to be caught off guard and liquidated.
02 The Temptations and Traps of Full Margin
Many people mistakenly believe that 'going all in = maximizing profit', but in fact, it is quite the opposite. My cousin is a living example—95% of his funds were all-in with 3x leverage, and a mere 2.5% market correction led to his account being wiped out.
This 'gambling-style operation' is too common in the crypto space. Many investors use leverage to seek higher returns, but once the market trend turns unfavorable, they face enormous losses or even complete loss of capital.
The liquidation effect of leveraged funds can lead to a chain reaction of liquidations, further exacerbating price volatility and creating a vicious cycle. This explains why during market downturns, there often arises a cycle of 'decline—liquidation—selling—further liquidation.'
My cousin's experience is by no means an isolated case. Industry analysts point out that the unhealthy nature of high-leverage markets manifests in amplified investment risks and increased market volatility. Ordinary investors often overlook risk management by heavily investing and holding positions, ultimately leading to significant losses.
03 Three Iron Rules, My Path to Redemption
After suffering two consecutive full-margin liquidations at the beginning of the year, losing nearly half of my capital, I reflected deeply and explored three iron rules. These rules not only saved my account but also increased my net value by 70% within four months.
Iron Rule One: Limit each position to 5% to allow room for mistakes
I strictly divide my total capital into 20 parts, using a maximum of 5% for each trade. For example, with a 10,000 yuan account, the maximum investment per transaction is 500U.
This approach may seem conservative, but it significantly increases the margin for error: even if the 5% stop-loss line is triggered, the single loss is only 25U, less than 0.3% of the total capital, far lower than the 'one-hit kill' risk under the full-margin model.
Iron Rule Two: Pre-set stop-loss lines to lock in maximum loss amounts
I require that a stop-loss point be set at the moment of opening a position for every trade, and that the single loss never exceeds 1% of the total capital.
For example, opening a 3x leverage position with 500U, the stop-loss level is strictly controlled within a price fluctuation of 1.7% (approximately losing 8.5U). This forces me to accurately calculate the risk-reward ratio before entering, avoiding emotional holding of positions.
Iron Rule Three: If the trend is unclear, it is better to stay out than to gamble
I found that most liquidations stem from the 'wishful thinking in ambiguous markets.' Now I only enter the market when key resistance levels are broken on the daily chart with accompanying volume, and I never blindly increase my position after making a profit.
04 Risk management awareness is the best safeguard
One of my friends who followed me in learning previously faced liquidation on average once a month. After practicing these three principles, his account steadily grew from 2000U to 3500U in six months. He lamented: “I used to think that going all in was bold, but now I understand that true courage is learning to restrain oneself.”
In the cryptocurrency market, risk control is a mandatory course in leveraged trading. Reasonable risk management includes setting clear stop-loss points, controlling leverage ratios, and avoiding excessive concentration in investments.
Industry experts also emphasize that ordinary investors should avoid participating in high-leverage contract trading, as such trading carries extremely high risks for ordinary investors and should be viewed as hedging tools for professional institutions rather than personal speculative means.
Especially for Chinese investors, it is crucial to be aware that domestic virtual currency trading is considered illegal financial activity, and participating in virtual currency trading carries extremely high policy and legal risks.
Late-night news of liquidations reminds me of my reckless entry into the crypto space. The market's cruelty never changes due to personal feelings, but we can build a defensive line for ourselves through rules.
I replied to my cousin: “The liquidation is not the fault of leverage, but rather our underestimation of capital. The market punishes those who gamble recklessly, but rewards those who adhere to the rules.”
After all, in this highly volatile market, survival is more important than making quick money. Follow Ake to stay updated with more first-hand information and precise points in the crypto space; learning is your greatest wealth!
