What Is Liquidation?

In trading, liquidation happens when a trader has insufficient funds to keep a leveraged trade open.

The exchange or lending protocol closes the position.

• Any collateral that was used to open the position is sold (“liquidated”)

• The proceedings of collateral liquidation is used to paid the trades who took the opposite side of the trade

In decentralised finance, liquidation also happens on lending protocols.

See also

• Decentralised finance

• Shorting

• Longing

• Leverage