Forced Liquidation

AAA

DEFINITION of 'Forced Liquidation'

An action taken by brokerage houses that offsets and closes all positions within delinquent customer accounts in order to reduce exposure.

INVESTOPEDIA EXPLAINS 'Forced Liquidation'

Forced liquidations generally occur after warnings have been issued by the broker regarding the under-margin situation of an account. Should the account holder choose not to meet the margin requirements, the broker has the right to sell off the positions.

RELATED TERMS
  1. Liquidation Value

    The total worth of a company's physical assets when it goes out ...
  2. Voluntary Liquidation

    A corporate liquidation that has been approved by the shareholders ...
  3. House Call

    A brokerage house notification that the customer's equity in ...
  4. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  5. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  6. Initial Margin

    The percentage of the purchase price of securities (that can ...
RELATED FAQS
  1. What is the difference between compulsory and voluntary liquidation?

    Liquidation is the process where a firm's assets and liabilities are terminated, realized and subsequently distributed. In ... Read Full Answer >>
  2. What debt to equity ratio is common for a bank?

    The average debt-to-equity ratio for retail and commercial U.S. banks, as of January 2015, is approximately 2.2. For investment ... Read Full Answer >>
  3. What is the relationship between degree of operating leverage and profits?

    The degree of operating leverage directly reflects a company's cost structure, and cost structure is a significant variable ... Read Full Answer >>
  4. What is the difference between share purchase rights and options?

    There is a big difference between share purchase rights and options. With share purchase rights, the holder may or may not ... Read Full Answer >>
  5. What are the tax benefits of establishing a sinking fund?

    The primary tax benefit available through the creation of a sinking fund is a deduction for interest payments made. The other ... Read Full Answer >>
  6. What are the pros and cons of using the fixed charge coverage ratio?

    One main advantage of using the fixed-charge coverage ratio is it provides a good, fundamental assessment for lenders or ... Read Full Answer >>
Related Articles
  1. Investing Basics

    7 Investing Mistakes And How To Avoid Them

    No investor is flawless. Here are some common investing fallacies and a step-by-step guide on how to avoid them.
  2. Options & Futures

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  3. Brokers

    Private Equity's Returns Are Tempered By Its Risks

    Private equity firms adopt approaches to quickly hike up earnings and boost returns, but these investments come with big risks too.
  4. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.
  5. Brokers

    Interested in Derivative Products? Try CFDs

    A short article about the main risks and rewards of CFDs. These derivatives can help boost returns using leverage, but they could also magnify losses.
  6. Fundamental Analysis

    What is Gearing?

    Gearing, also called leverage, is the degree to which a company’s operations are funded by lenders versus shareholders.
  7. Stock Analysis

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.
  8. Mutual Funds & ETFs

    Buying ETFs on Margin Versus Leveraged ETFs

    Leveraged ETFs and investing in an ETF on margin both have their advantages and disadvantages.
  9. Investing

    Ready To Invest In Financial Leverage Funds?

    Whenever you invest in a leveraged financial fund or are thinking about doing so, it's important to know the risks that could weigh on its returns.
  10. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...

You May Also Like

Hot Definitions
  1. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  2. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  3. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  4. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
Trading Center