Liquidation
A forced closing of a leveraged position by the exchange when its margin falls below the required minimum.
A liquidation happens when a leveraged position loses enough value that its margin falls below the maintenance requirement. The exchange then closes the position, often at market, to limit losses to the posted margin. Any shortfall is covered by an insurance fund or, on some venues, by other traders.
On our site, liquidation levels and recent liquidation volume are shown as separate figures. A burst of liquidations in one direction often coincides with a sharp price move, and the forced selling or buying can add to it.
Traders care because a liquidation closes a position at a price that may be worse than the one they planned for, and sudden liquidation waves can distort prices for minutes.
Worked example (illustrative numbers, not real data): a trader opens a 10,000 dollar long at 10x leverage, posting 1,000 dollars of margin. The maintenance margin is 50 dollars, or 0.5 percent of notional. A fall of about 9.5 percent cuts the margin to about 50, and the exchange closes the position, leaving roughly 50 of the 1,000 posted.