Trading & Markets
Also: margin call, forced liquidation
Liquidation
The forced closure of a leveraged position or undercollateralized loan when collateral falls below a required threshold.
Liquidation occurs when the collateral backing a loan or leveraged position falls below the minimum required ratio, triggering automatic closure. In lending protocols, third-party liquidators buy the collateral at a discount and repay the debt. In perpetual futures, leveraged positions are liquidated at the exchange level. Cascading liquidations — where price drops trigger liquidations, which cause further price drops — are a primary driver of sharp crypto market corrections.