What Liquidation Means:
Liquidation occurs when a trader's collateral (margin) is no longer enough to cover their losses. At that point, the exchange forcibly closes the position to prevent further losses.
Why a Coin Liquidates:
1. High Leverage: Using leverage (e.g., 10x, 50x) amplifies gains and losses. A small price movement against your position can trigger liquidation.
2. Price Drop/Rise: If the market moves sharply against your trade (e.g., shorting and price goes up), your position can get liquidated.
3. Low Margin Balance: If your margin account doesn't have enough balance to maintain the position, it will be liquidated.
4. Volatility: Sudden spikes or crashes in crypto markets can trigger liquidations due to rapid price swings.
5. Auto-Deleveraging (ADL): On some platforms, your position may get liquidated if others are being liquidated and there's high volatility.