Liquidation is the automatic closing of a leveraged position when the trader’s losses use up the required margin. In a margin trade, borrowed funds amplify both gains and losses. If price moves too far against the position, the exchange or broker closes it to prevent the account from going negative.
In crypto markets, liquidations can trigger cascades: one forced exit pushes price further, which can force more exits and accelerate a squeeze. This is why sharp rallies or selloffs often look explosive when leverage is crowded. Risk controls such as lower leverage, larger collateral buffers, and close monitoring of margin levels help reduce liquidation risk and make trading more resilient.