How liquidation works
A trader who borrows to trade posts collateral, the margin. The platform sets a maintenance margin, the minimum collateral a position must keep, and values the position continuously at a mark price built from several markets, so that one odd trade cannot trigger it.
When losses bring the collateral down to the maintenance level, the liquidation engine takes over the position and closes it with market orders, in full or in steps. The price at which that happens, the liquidation price, can be worked out when the position is opened, and sits closer to the entry price the higher the leverage.
If the market moves too fast for the position to be closed in time, the loss can exceed the collateral. Platforms cover that gap from an insurance fund built from liquidation fees and, in the last resort, by reducing the winning positions on the other side.
Why liquidation matters to a platform that offers leverage
The liquidation engine is the platform's own risk control: every loss a trader cannot pay falls on the platform. Its design covers the mark price, margin tiers that lower leverage for large positions, the order in which positions are closed and what customers are told beforehand.
Liquidations also move markets. Forced sales push the price down and can trigger further liquidations, a cascade, which is why limits on leverage and position size are set per asset.
Liquidation, margin call or stop-loss?
- Margin call
- A warning to add collateral before liquidation. Many crypto platforms skip the call and liquidate automatically.
- Stop-loss order
- Placed by the trader to close a position at a chosen price, before the platform would.
- Liquidation of a company
- The winding-up of an insolvent firm and the sale of its assets. Same word, unrelated process.
Where Liquidation shows up in a platform
Modules that do the work
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- Market dataLive and historical prices for crypto, stocks and FX, from the data vendors you choose.
- PortfoliosHoldings, performance and statements for investors, across stocks and ETFs.