The Vibe: The forced sell-off of your position when losses eat too much of your margin — the exchange closes it to protect itself from owing you money.
The Details: Liquidation happens in leveraged/margin trading (futures, perps) when your position’s losses push your account below a required maintenance margin level. Example: 10x leverage on BTC — a ~10% move against you wipes your margin and triggers liquidation (auto-sell at market price). Exchanges add a buffer (liquidation price) so they recover the loan. Partial liquidation sells enough to restore margin; full liquidation closes everything. Fees are high, and slippage can make losses worse in volatile markets. In 2026, liquidation cascades (many at once) still cause flash crashes.
Pro Tip: Avoid liquidation by:
- Using low leverage (1x–5x max for beginners).
- Setting stop-losses before entry.
- Keeping extra margin buffer (don’t max out).
- Monitoring position health (health factor on Aave, margin level on Binance).
Never trade with money you can’t afford to lose — liquidation is brutal and fast.