Liquidation
markets · derivatives
The forced closure of a leveraged position when collateral falls below required margin.
- Also known as
- forced close, margin call
Liquidation occurs when a trader's equity falls below the maintenance margin required to keep a leveraged position open. The venue closes some or all of the position to repay lenders or protect the exchange from losses.
Liquidation risk can be reduced with lower leverage, isolated margin, extra collateral, hedging, and clear exit rules. Stop orders help but do not guarantee protection in gaps or illiquid markets.
Related terms
Leverage
→Borrowed or synthetic exposure that increases position size, amplifying both gains and losses.
markets · derivatives
Futures
→Futures are derivatives for long or short exposure to an asset; crypto markets commonly use perpetual futures with no expiry.
trading · derivatives
Funding Rate
→A funding rate is the periodic payment between long and short perpetual futures positions that helps anchor price to spot.
trading · derivatives