Wordbook: Liquidation

A liquidation event (a.ka. getting rekt) occurs when a trader’s position is closed forcibly by the exchange because the trader ran out of margin or the capital provided. When the price begins to move against the trader, the losses are paid for from the margin provided. If the losses exceed the margin provided, the trader is liquidated.

Liquidations are closely related to leverage; higher leverage allows traders to open positions larger than the initial margin provided but also makes liquidation more likely.

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