Liquidation definition

Liquidation is the forced closure of a leveraged position by a broker or exchange when your margin falls below the level required to keep the position open. It caps further losses but can wipe out all or part of the margin you posted.

Liquidation triggers automatically when the market moves against a leveraged position and your account equity or margin level drops under the maintenance margin. The broker or exchange then closes the position for you to limit further losses and help prevent a negative balance. It is common in margin trading, futures, crypto derivatives, and CFD trading.

Liquidation differs from a voluntary exit because a risk system triggers it, not your decision. You manage liquidation risk with lower leverage, enough free margin, stop-loss orders, and close monitoring of margin levels in volatile markets.