What is Liquidation?

Liquidation is the forced closing of a leveraged position by the venue when the losses on it have consumed the collateral that backed it. A trader who opens a position with borrowed exposure posts margin; as the price moves against the position, the unrealized loss reduces that margin, and at a defined threshold the venue closes the position to make sure the loss never exceeds what was posted. The collateral, or most of it, is gone.

The number that matters before it happens is the liquidation price, and its distance from the current price. Higher leverage puts the liquidation price closer, and cross-margin accounts, where one pool of collateral backs several positions, can be pulled down by a single bad position. Isolated margin confines the damage to the position that failed. Reading which mode an account is in is part of reading its risk.

Liquidation exists in DeFi lending as well, with different mechanics. A loan on a protocol such as Aave is backed by collateral deposited on-chain; if the collateral’s value falls below a required ratio, anyone can repay part of the loan and take the collateral at a discount. The borrower keeps the loan but loses collateral, and the event is visible on-chain like any other transaction.

A tracker earns its keep here by showing distance to liquidation next to everything else, across venues, instead of leaving it inside each exchange’s own interface. A position that is fine on its own venue can be the one that empties a cross-margin account, and that is only visible when every position sits in one view. TrueHold reads positions and margin on Hyperliquid by address, on Lighter through a read-only token and on exchanges by read-only key, so the position that could liquidate you appears in the same view as the assets that could cover it.