Liquidation / Liquidation
In short: Liquidation means converting an asset or a cryptocurrency into fiat money or its equivalent. For example, selling coins for dollars or euros, or for a…
Liquidation means converting an asset or a cryptocurrency into fiat money or its equivalent. For example, selling coins for dollars or euros, or for a stablecoin that tracks one of them, turns a holding into cash or something close to cash.
Why it matters
People liquidate to take profits, pay for expenses or reduce risk, and in many countries the sale can have tax consequences. In trading, the word also describes forced liquidation: when a leveraged position loses too much value, the platform closes it automatically so the loss does not exceed the trader's collateral. Market news about liquidations usually refers to these forced closures, so it helps to know which meaning is being used.
Example
A holder who decides to leave the market sells coins on an exchange for a fiat currency and withdraws the money to a bank account; that is a voluntary liquidation. By contrast, a trader who borrowed funds to open a large position may see it closed automatically when the price moves sharply against it; that is a forced liquidation.