Forced liquidation occurs when a trader’s position is automatically closed by an exchange or trading platform due to insufficient margin. This typically happens in margin trading, where traders borrow funds to increase their exposure to an asset. When the value of the asset moves against the trader’s position, their account may fall below the required margin level. To mitigate risk, exchanges have liquidation mechanisms in place. If the account balance dips too low, the exchange will automatically sell the trader’s assets to cover the losses, often at the current market price.This process can result in significant losses for the trader, as positions may be liquidated at unfavorable prices, especially during high volatility. Understanding margin requirements and closely monitoring positions can help traders avoid forced liquidation and better manage risks.