Liquidation
Intermediate
Glossary
Nov 14, 2023
3 min read
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Introduction to Liquidation in Cryptocurrency
What is Liquidation?
In the dynamic world of cryptocurrency, liquidation plays a pivotal role, particularly in leveraged trading. Liquidation occurs when a trader's position is closed forcibly by the exchange because the trader's margin balance falls below the required maintenance margin level. This can be a common occurrence in volatile markets.
The Role of Leverage in Liquidation
Leverage amplifies both potential gains and losses. While it can increase a trader’s buying power, it also increases the risk of liquidation. Understanding the mechanics of leveraged trading is crucial for any investor looking to venture into these waters.