Updated 2026-07-25
A liquidation is the forced closure of a leveraged position by the exchange, triggered when the margin backing that position can no longer cover its unrealised loss. The trader does not choose the exit. The venue's risk engine closes the position at or near the liquidation price and the margin behind it is gone.
Liquidation is a margin event, not a price prediction. It happens when equity in the position falls to the maintenance margin requirement, which is why higher leverage means a smaller adverse move is enough to trigger it. Because liquidations are market orders that must fill, they add real, one-directional pressure to the book, and clusters of them at similar prices are what produce a liquidation cascade. That is why traders map where leverage sits before it unwinds rather than reacting after the fact. See how to read liquidation levels.