Liquidation
The forced closing of a leveraged position when losses drop its collateral below the required minimum.
Liquidation is what happens when a leveraged trade runs out of margin. Once losses push your collateral below the maintenance level, the exchange closes the position automatically to avoid going negative. You don't choose the exit; the system does, often at the worst moment.
Liquidations cluster. A sharp move triggers a wave of them, and each forced sale pushes the price further, triggering more, a cascade. Single days have erased over a billion dollars in leveraged crypto positions this way. The higher your leverage, the smaller the move that ends you: at 100x, a 1% drop is enough.
Related terms
Borrowed money used to control a larger position than your own capital would allow, amplifying gains and losses.
Margin TradingTrading with borrowed funds, posting collateral to open positions larger than your account balance alone.
FuturesContracts to buy or sell an asset at a set price on a future date, often traded with leverage.
Perpetual SwapA futures contract with no expiry date, kept aligned to spot price by recurring funding payments.