Have you ever wondered what bankruptcy is and why everyone fears it so much? Today I want to share three scenarios that every margin trader needs to understand clearly.

First is light bankruptcy. Imagine you have 10,000 RMB in your account and have used it all as margin. At this point, your risk is 100%. Normally, the brokerage company is fine with this. But if the market moves against you and your account balance drops to 9,000 RMB, your risk rises to 90%, meaning you've lost 1,000 RMB. This situation is called bankruptcy — when your capital is no longer enough to maintain your position. The brokerage will send you a margin call to increase your margin.

If you don't respond and your losses continue to grow, for example to 4,000 RMB, your risk drops to 60%, and you'll enter a forced liquidation zone. At this point, the broker will contact you immediately. The good news is that although the risk is very high, your account still has funds — specifically, 6,000 RMB.

But there's an even worse scenario. If the market continues to move against you extremely, and you lose 12,000 RMB, your account will have a negative balance — -2,000 RMB. This is true bankruptcy — not only losing all your capital but also owing money to the broker. This debt is actually the trading margin that the company has paid to the exchange.

The most important thing is that we must always monitor the risk of our account. What bankruptcy is is just a number, but the consequences are very real. If you go bankrupt and do not repay the money to the company or exchange, you could be reported to the credit system, even blacklisted from the market, or face legal action.

Perhaps the key thing to remember is that risk management is not optional — it is a rule of this game. Anyone participating in margin trading must comply. So, regularly check your account, understand your current risk level, and never let it exceed what you can tolerate.