A liquidation is the forced closing of a leveraged position when the trader runs out of margin — the exchange closes it at market price automatically. Long liquidations create forced selling (pushing price down); short liquidations create forced buying (pushing price up). Because each liquidation moves price toward more liquidations, they cascade, which is why crypto can drop or spike several percent in minutes.
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FAQ
What is Liquidation?
A liquidation is the forced closing of a leveraged position when the trader runs out of margin — the exchange closes it at market price automatically. Long liquidations create forced selling (pushing price down); short liquidations create forced buying (pushing price up). Because each liquidation moves price toward more liquidations, they cascade, which is why crypto can drop or spike several percent in minutes.