> For the complete documentation index, see [llms.txt](https://guide.dem.exchange/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://guide.dem.exchange/community/glossary/liquidation.md). # Liquidation Liquidation is the process of converting assets into stablecoins, such as USDC, and can occur through either forced or voluntary actions. Forced liquidation is common in margin trading when a trader's position is automatically closed due to the inability to meet the required conditions for leveraged positions. Leverage, which amplifies market positions, plays a crucial role, and higher leverage results in a narrower liquidation price range. Consider a scenario where a trader wishes to margin trade BTC/USD, borrows $1,000 for a 5x leverage, and experiences a significant price drop. If the market moves unfavorably, the trader may face forced liquidation to protect against further losses. This forced liquidation process is designed to happen automatically, often before the trader's actual stake is significantly reduced. Platforms like Binance allow users to assess the liquidation price before entering leveraged positions, factoring in position size, account balance, and leveraged amount. Voluntary liquidation, in contrast, is a deliberate decision by a trader to convert their crypto assets into fiat or stablecoins for personal reasons. This process is not automated and reflects the trader's strategic choices or risk management preferences. Liquidation concepts also extend to futures markets, where traders may strategically convert assets based on market conditions and individual objectives. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation by asking a question. Perform an HTTP GET request on the following URL with the `ask` and `goal` query parameters: ``` GET https://guide.dem.exchange/community/glossary/liquidation.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is what the user is ultimately trying to achieve, the reason they need the answer. Sharing it helps GitBook give you a better, more relevant answer. A goal is most helpful when it describes the outcome the user wants rather than restating the question. For example, with `ask=how do I create an API token`, a goal like `automate deployments from our CI pipeline` lets GitBook tailor the answer to that use case. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.