Lately, every time I visit my family during the Lunar New Year, I get asked about cryptocurrencies. Come on, when TRUMP issues a digital currency, people become curious, especially when they see me stuck in the market, unable to make money, and haunted by questions about trading.

Yesterday, a relative kept asking, "What is a margin call?" Hearing that, I shivered because it brought back painful memories. But I had to explain it clearly, because they are confusing regular crypto trading with leveraged contract trading.

I started: "Alright, just keep it simple. Suppose you have 10,000 yuan and buy Bitcoin with that amount. If Bitcoin goes up by 10%, you make 1,000 yuan. If it drops by 10%, you lose 1,000 yuan. This is called spot trading, like buying stocks normally, and it will never wipe out your account to zero."

"But why does a margin call happen in virtual stock trading? That’s because of leverage. When you open a contract with 9x leverage, the exchange lends you 90,000 yuan. Your capital of 10,000 yuan becomes 100,000 yuan. If Bitcoin increases by 10%, you earn 10,000 yuan profit instead of 1,000 yuan. Ten times more!"

He asked: "Why does the platform lend money?"

I continued: "Because they make more trading fees, and they have no risk. When your capital increases tenfold, your trading volume also increases tenfold, and so do their fees. The important part is, when you lose all your actual capital, they will automatically liquidate to cut losses."

"Here’s where it gets dangerous. If Bitcoin drops by 10%, you lose 10,000 yuan, which means your actual capital is gone. At that point, the exchange will force a liquidation, cut losses, and recover the 90,000 yuan they lent you. That’s what a margin call is — your capital drops to zero completely!"

He was stunned after hearing this, eyes wide with a mix of greed, fear, and confusion. I knew at that moment, a door in his mind had opened, and there was no turning back.