How Does the Forced Liquidation Process Work during a Margin Call?
When a margin call is unmet, the broker or exchange automatically initiates the forced sale of the trader's positions. This is done by the automated liquidation engine.
The objective is to reduce the account's total exposure and raise the equity level above the maintenance margin. This process is executed at current market prices, often locking in significant losses for the trader.
Glossar
Forced Sale
Liquidation ⎊ A forced sale, commonly referred to as liquidation in DeFi, is the automated process where a protocol sells a user's collateral to repay outstanding debt.
Forced Liquidation Process
Liquidation ⎊ The forced liquidation process, particularly within cryptocurrency derivatives and options trading, represents a critical risk management mechanism triggered when an account’s margin falls below the required maintenance level.