In plain English
What Liquidation means
When an account no longer meets margin requirements, a broker or venue may close positions automatically or sell assets to stop losses from increasing. Liquidation can happen quickly, especially in fast markets, and the trader may not control which positions are closed first. The exact process depends on the broker, product, and rules in the account agreement.
Why it matters
Liquidation is one of the main risks in margin-based trading because it can lock in losses at an unfavorable time. Understanding when and how it occurs helps traders interpret margin calls, stop-out levels, and account equity changes.
Example
A leveraged position loses value and account equity falls below the broker’s stop-out threshold. The broker closes part or all of the position to prevent further deterioration. If the market is moving sharply, the close price may be worse than the price that triggered the liquidation.
Quick answers
Common questions
Is liquidation always total?+
No. Some brokers liquidate part of a position or multiple positions in sequence, while others may close everything at once depending on the rules.
Can liquidation occur even if a trader wants to add more funds?+
Yes. In fast markets, the broker may act before additional funds arrive or before a manual intervention can be processed.
Sources