What Is a Liquidation in Leveraged Crypto Futures Trading?
Liquidation is the forced closure of a trader's leveraged position by the exchange's risk engine. It occurs when the margin balance falls below the maintenance margin requirement, typically due to adverse price movement.
This is done to prevent the trader's losses from exceeding their collateral, ensuring the exchange does not incur a loss. The position is closed at the liquidation price, and the remaining margin, if any, is returned to the trader.
Glossar
Liquidation Price
Trigger ⎊ The Liquidation Price is the specific market price level at which a trader's margin equity falls to the maintenance margin threshold, causing the exchange or protocol to automatically close the leveraged position to prevent the account balance from falling into negative territory.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Margin Balance
Balance ⎊ The margin balance represents the net value of a trading account, reflecting the difference between the total collateral posted and the current realized and unrealized profit or loss on open positions.