Can financing and stock trading really make you rich? First, clarify these 5 pitfalls.

Question

Recently, the crypto world and the stock market have been discussing financing leverage. Some people have become rich overnight using Margin accounts, while others have directly Get Liquidated and dropped to zero. Today, let's break down whether this trap is worth it.

The Core Logic of Margin Trading

In simple terms, it means borrowing money from a broker to trade stocks. You have 5000 yuan and are optimistic about a certain stock, wanting to buy a position worth 10000 yuan—sure, they will lend you 5000 yuan, but this loan must be secured by the assets in your account.

Sounds good? Indeed. If that stock rises by 20%, your principal of 5000 yuan directly turns into 8000 yuan—a 40% return rate. But what if it goes the other way? If it drops by 20%, you lose 2000 yuan, and it's not enough to go back to square one.

5 Attractive Points of Margin Trading

1. Leverage Amplifies Returns Using borrowed money to expand positions, even a small increase can turn into significant profits. No need to wait for cash flow, quickly seize opportunities.

2. Shorting is also fine Margin accounts can borrow stocks to short sell, making profits regardless of price fluctuations—in theory. This is attractive to professional traders, but the risks are also doubled.

3. Flexible Adjustment of Positions Having ample purchasing power at all times allows for quicker reactions in a rapidly changing market without having to wait for cash to arrive.

4. Interest may be tax-deductible In certain regions, financing interest may be deductible from taxable income as investment expenses (depending on local tax laws).

5. Diversification Using limited funds to leverage larger positions can theoretically construct more complex strategies.

But the problem is also leverage.

Losses will hit back repeatedly While amplifying profits, losses are also amplified. The most heartbreaking thing is that losses may exceed your principal. Especially when encountering a black swan event, the account can be swallowed instantly.

Financing interest will eat into profits It's not free money. The interest fluctuates based on market conditions, and the cost of holding long-term positions can be very high. Assuming a monthly interest of 0.5%, that's a 6% cost over a year, and a small loss combined with interest can lead to a direct exit.

Margin call can lead to bankruptcy When the account equity drops to a certain percentage (for example, 30%), the broker will directly require you to add funds. Unable to add? They will forcibly close your positions, usually selling your most valuable positions at the worst price. This operation often accelerates losses.

Market volatility kills directly The financing account is most sensitive to fluctuations. A positive development may lead to a drop instead, or unexpected bad news could cause the account value to evaporate instantly.

Psychological pressure is an invisible killer Watching the principal rapidly decline, most people will panic, act irrationally, adjusting the strategy as they lose more, ultimately leading to self-destruction.

Who is suitable to play this?

To be honest, only professional traders or seasoned veterans with particularly strong risk tolerance should engage in financing.

The final outcome for most retail investors is:

Forced liquidation, cutting losses and accepting losses
Financing interest eats up all profits
A big drop, directly Get Liquidated
Mental breakdown, making extreme moves

Core Recommendations

Financing trading ≠ quick wealth. It is just a risk management tool, provided that you truly understand the market, have a complete stop-loss plan, and are psychologically prepared to bear a 100% loss of principal.

If you are still struggling with whether to finance or not, the answer is most likely you should not.