Liquidation

Liquidation is the forced closure of a leveraged position by an exchange when the collateral backing it falls below the required maintenance margin. Rather than letting the account go negative, the platform's risk engine sells or buys back the position at market, often at a worse price than the trader would have chosen, and may charge a liquidation fee. Because leveraged positions across a market often sit at similar levels, a sharp move can trigger cascading liquidations that push the price further and liquidate more positions. Traders reduce the risk by using lower leverage, adding margin early, and monitoring the liquidation price the exchange displays.