Continuum Logocontinuum
Trading

What Is Liquidation?

Forced closure of a position when collateral value falls below required levels.

Definition

Liquidation occurs in leveraged positions when your collateral no longer sufficiently covers your debt. A liquidator repays part of your debt and takes collateral at a discount, closing your position.

How It Works

Protocols set minimum collateral ratios (e.g., 150%). If your collateral value drops below this threshold, anyone can liquidate your position. You lose collateral and potentially face a penalty.

In Continuum

Continuum minting has NO liquidation risk - L/S tokens are always 100% collateralized. However, if you use L tokens as collateral on lending protocols for leverage, those positions can be liquidated.

Related Terms

Leverage

Using borrowed capital to amplify the potential returns (and risks) of a position.

Health Factor

A metric indicating how close a leveraged position is to liquidation.

More Trading Terms

LeverageFunding RatePerpetual Futures (Perps)Arbitrage

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