Liquidation happens when your account balance can’t cover the losses on a leveraged trade.

Every position has a maintenance margin. If the market moves against you and your equity drops below that level, the system will step in and start closing your trade automatically. On most crypto margin trading exchange, this means either partial liquidation (closing part of the position) or full liquidation if losses are too big.

Some platforms also rely on insurance funds and auto-deleveraging (ADL) to make sure the exchange doesn’t take on bad debt. In short, liquidation protects the system while limiting how much a trader can lose beyond their collateral.