Position liquidation: when the exchange closes it for you

Liquidation occurs when an unrealized loss on a leveraged position uses up so much of your collateral that it falls below the required maintenance level. The platform then closes the position automatically, often at an unfavorable price, and the trader loses most or all of the margin assigned to the position. The price at which this happens is the liquidation price.

A simplified example for a long: with 10× leverage, a price move of about 10% down wipes out the entire collateral, and in practice liquidation happens sooner because of fees and maintenance margin. Higher leverage means a closer liquidation price. Cascading liquidations can fuel sharp market moves. Low leverage and a stop loss placed before the liquidation price, not beyond it, offer protection.