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Liquidation in trading: slang meaning

In leveraged trading, liquidation means the imposed closing or reduction of a position after its collateral no longer meets risk requirements.

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This reference cites the Cyclepedia entry. The documents it draws on are listed in the entry’s sources.

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In simple terms

In leveraged trading, liquidation is the closing or reduction of a position imposed by a broker, exchange, or risk system because the available capital no longer meets its requirements.

It is not the ordinary case in which a trader chooses to exit at a loss. The full Liquidation entry explains initial margin, maintenance margin, liquidation price, and differences between venues.

What happens

When collateral falls below a threshold, the trader may receive a margin call or the position may be reduced automatically. Rules, order priority, fees, and protections vary by instrument and intermediary; they should be checked before using leverage.

Liquidation protects the venue's risk controls, but it does not guarantee the customer an exact execution price or always prevent a negative balance. In a fast market, execution may occur beyond the displayed threshold.

Sources