Futures & Derivatives
Liquidation explained
Liquidation – getting wiped out
Quick definition: Liquidation happens when a leveraged position has lost almost all of its margin, and the exchange automatically closes it to prevent further losses. Traders often call it getting "rekt".
When you open a leveraged position, you only put up part of the money (the margin). If the price moves far enough against you, your loss approaches your margin and the exchange closes the position at the liquidation price.
Longs get liquidated when the price falls sharply, Shorts when it rises sharply. When many positions on the same side are liquidated, the exchange has to sell (or buy) urgently, pushing the price further in that direction.
Large liquidation waves often occur near short-term tops or bottoms, so many traders watch liquidation data to see which side the market is "sweeping".
You go Long ETH with 20x leverage. A drop of only about 5% could get your position liquidated, wiping out almost all of your margin.
Related terms
Educational content for reference only, not financial advice. Leveraged trading carries the risk of losing your entire capital.