Liquidation
The forced closure of a leveraged position when losses approach your collateral — often cascading into market-wide moves.
Liquidation is the exchange force-closing a leveraged position once losses eat your margin: at 10× leverage, roughly a 10% adverse move (less, after fees) triggers it, and the collateral is gone. On lending protocols, liquidation instead means collateral being auctioned when its value falls below required ratios.
Liquidations cluster and cascade: forced selling pushes price into the next band of liquidations, producing crypto’s signature violent wicks — billions can liquidate in hours. Liquidation heatmaps and open-interest data essentially map where these landmines sit. For the unleveraged, cascades are turbulence; for the overleveraged, they’re the exit.