Forced Position Closures

Definition ∞ Forced position closures, also known as liquidations, occur in leveraged trading when a trader’s collateral falls below a predetermined maintenance margin threshold. Automated systems on exchanges then compulsorily close the position to prevent further losses for the platform and its lenders. This mechanism safeguards market stability by ensuring that insufficient collateral does not accumulate unchecked.
Context ∞ News reports often detail forced position closures during periods of sharp market movements in digital asset derivatives, underscoring the inherent risks of leveraged trading. The discussions often center on the influence of such liquidations on market variability and the design of risk management systems by various trading platforms. Regulatory oversight of leverage limits and transparency in liquidation processes remains a significant area of focus.