What Is Liquidation?
Your position gets closed for you when the collateral no longer covers the debt.
Definition
Liquidation is what happens when your collateral stops covering your debt. Someone else repays part of what you owe, takes collateral at a discount for the trouble, and your position is gone. It is not a warning, it is the event.
How it works
Protocols set a minimum collateral ratio, often around 150%. Drop under it and anyone watching can close you out. You lose collateral, and usually a penalty on top.
In Continuum
Minting on Continuum cannot be liquidated. L/S tokens are fully collateralized at all times and there is no margin to call. Borrowing against an L token on a lending market is a different position entirely, and that one can be liquidated like any other.
Related terms
More trading terms
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