Glossary

Liquidation

A liquidation is the forced closing of a leveraged position when the margin no longer covers the loss.

A liquidation happens when a leveraged position loses so much value that the margin can no longer cover it. The exchange then closes the position by force. It does this to protect itself and its lenders from further loss. The trader does not choose the timing or the price.

A long position is liquidated when the price falls to its liquidation level. A short position is liquidated when the price rises to its level. The forced order is a market order. It buys back a short or sells a long, which can push the price further in the same direction and trigger other liquidations.

Liquidation data usually shows the dollar value of forced orders per period. Exchanges report it in different ways, and some report only a sample. The data is therefore a partial record. High liquidation volume shows that leveraged positions closed. It does not show what will happen next.