What is Liquidation?
Forced closing of a leveraged position when its margin falls below the maintenance level.
Liquidations are automatic and do not care about your view. They add market orders in the direction of the move, which can push the price further and trigger more.
Large liquidation clusters are visible in exchange data after the fact. They explain violent wicks that leave the longer trend untouched.
Related terms
- LeverageTrading
Using borrowed exposure so a small price move produces a large gain or loss.
- Perpetual futuresTrading
A derivative that tracks an asset with no expiry, held open by periodic funding payments.
- Open interestTrading
The total value of futures positions currently open, a measure of how much leverage is in play.