What is Liquidation?

The term liquidation refers to the process whereby a trader has an open leveraged position – often via a futures contract – that goes against their intended goal, resulting in the loss of the entire initial position. For example, let's say a trader opens a position to buy $1,000 USD worth of ether (ETH) at a current price of $2,000 per ETH with 10X leverage, betting the price will go up, but the market moves the other way and the price drops below their $1,500 USD/ETH liquidation point — resulting in the complete loss of their initial investment.