What is liquidation?
For example: Suppose the current price of Bitcoin is $50,000 each. If you spend $50,000 to buy 1, that's a normal transaction.
But there is another way to play called leveraged trading. Even if you buy 1 Bitcoin, you only need to put down 10% of the money, which is $5,000, and the remaining 90% ($45,000) is lent to you by the platform, which is 10 times leverage.
However, the money the platform lent you is not free; it must be repaid later.
If Bitcoin rises to $55,000, a 10% increase, and you sell it to pay off the $45,000 loan, you net $10,000—equivalent to doubling your initial $5,000 principal.
But what if it drops? Once Bitcoin falls to $45,000, the value of Bitcoin is just enough to pay back the platform's loan. At this point, although it only dropped by 10%, under 10 times leverage, your $5,000 principal has already been wiped out.
At this point, can you say, 'I think it will bounce back, so I won't sell'? Definitely not. Your money can sit there, but the money the platform lent you is its principal; why should it gamble with you? What if it doesn't bounce back? Who will the platform ask for its money?
So the platform has the right to sell your Bitcoin directly to get back its $45,000. Even if it sells late, and Bitcoin drops to $44,000, not only will you lose your principal, but you will also owe the platform $1,000—this is a debt that must be repaid, which is called 'liquidation.'
If you want to avoid liquidation, there is a way, which is to add margin. For example, if you add $5,000 to your account, then your funds plus the value of Bitcoin will exceed $45,000 again, making you temporarily safe.
