What it is
In leveraged trading, traders borrow funds to amplify their potential returns. To maintain these positions, they must hold a certain amount of collateral, known as margin. If the market moves against a trader's position, causing the value of their collateral to drop below a pre-set maintenance margin level, the exchange automatically closes the position to prevent further losses and protect the borrowed funds. This forced closure is a liquidation.
Liquidations frequently occur during periods of high market volatility in crypto. Large-scale liquidations, often called "liquidation cascades," can accelerate price drops as forced selling puts further downward pressure on asset prices. Traders can avoid liquidation by monitoring their margin levels, adding more collateral, or reducing their leverage. Exchanges often publish liquidation data, which can indicate market stress or potential turning points.
Why it matters
Liquidations can lead to significant losses for leveraged traders and can trigger rapid price movements across the market, impacting your portfolio.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice