Liquidation is a venue’s process for closing or reducing a leveraged position when the supporting account or position no longer meets its maintenance-margin requirement. It is a risk-management mechanism for the trading venue, not a guarantee that the trader’s losses will be small.
What triggers liquidation?
Losses reduce the equity available to support a position. Funding, fees and changes elsewhere in a shared-margin account can also affect the available buffer. The relevant rules depend on the venue and account type.
The trigger may use a mark price rather than the most recent trade shown on a chart. Hyperliquid, for example, identifies its mark price as an input to margining and liquidation.
A liquidation price is not a promised exit price
The threshold that triggers action and the price at which a position actually closes are different concepts. Liquidity and market movement affect what can be executed after a threshold is reached.
For that reason, an automated exit rule and a liquidation mechanism should not be treated as substitutes. The former belongs to the strategy’s trading process; the latter responds to a margin shortfall.
A strategy can have risk controls and still experience losses or liquidation. Historical records are useful for understanding past behaviour, but they cannot establish a maximum future loss.