Liquidation

Liquidation is when an exchange forcibly closes a trader's leveraged position because losses have eaten through the margin backing it. It matters to anyone trading with borrowed money since it can wipe out a position in seconds, often at a worse price than expected due to slippage and fees. For example, a trader opens a $1,000 long on Bitcoin at 10x leverage, controlling $10,000 worth of BTC. If Bitcoin's price drops about 10%, the exchange automatically sells the position to cover the loan, and the trader's original $1,000 is largely or fully gone. Large liquidation waves can also cascade, pushing prices down further as forced selling triggers more liquidations, which is why sudden market crashes sometimes look sharper than the news driving them.