A liquidation is the forced closure of a leveraged position by the exchange because the trader's losses have eaten into the required margin. It happens automatically, at market, and without warning.
The mechanics
Every leveraged position posts a fraction of its notional value as collateral — the initial margin. As the position loses money, the equity shrinks toward the maintenance margin, a smaller threshold below which the exchange will no longer extend credit. When price hits that line, the engine closes the position to protect the exchange's loan.
What it looks like in practice
Open a 20x leveraged BTC long at $70,000 with $1,000 in margin and the maintenance threshold sits around a 4–5% adverse move. Make that move and you lose the $1,000 — the system liquidates you on its own terms, which may not be the price you wanted. On a thin feed or volatile tape, mark-price vs. last-trade gapping can take 5–10% off your equity in minutes.
Cascade risk
When a wave of longs gets liquidated, those forced market-sells push the price lower, triggering more liquidations. This feedback loop is a liquidation cascade — the engine behind flash crashes and the "wick-of-the-month" lows you see charted. AlphaTerminal's liquidation tracker aggregates cascade events across all major venues in real time.
Protect yourself
Use lower leverage (3x–5x for swing trades) so intraday volatility cannot push you to the threshold, set isolated margin on each position so one liquidation cannot drain the rest of your book, and always wire trailing stops into your auto-trader — the moment to take a loss is before the exchange takes it for you.