Liquidation Level

AAA

DEFINITION of 'Liquidation Level'

In forex trading, the specific value of a trader's account below which the liquidation of the trader's positions is automatically triggered and executed at the best available exchange rate at the time. The liquidation level is expressed as a percentage value of assets. If a forex trader's positions go against him or her, his or her account will eventually reach the liquidation level, unless the trader contributes further margin to top up his or her account.

INVESTOPEDIA EXPLAINS 'Liquidation Level'

Forex trading makes heavy use of leverage; therefore, the forex dealer holding an account for a trader takes on the risk that the trader's positions will lose money and that the trader will be unable to repay the borrowed funds used to make the forex trades. As such, a specified liquidation level, which the trader agrees to when opening his or her account, fixes the minimum margin (expressed as a percentage) that the forex dealer will tolerate before automatically liquidating the trader's assets to avoid the possibility of default.

RELATED TERMS
  1. Call Money

    Money loaned by a bank that must be repaid on demand. Unlike ...
  2. Voluntary Liquidation

    A corporate liquidation that has been approved by the shareholders ...
  3. Economic Capital

    The amount of capital that a firm, usually in financial services, ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  6. Liquidation

    1. When a business or firm is terminated or bankrupt, its assets ...
Related Articles
  1. The Fundamentals Of Forex Fundamentals
    Forex Education

    The Fundamentals Of Forex Fundamentals

  2. A Primer On The Forex Market
    Options & Futures

    A Primer On The Forex Market

  3. Top 7 Questions About Currency Trading ...
    Forex Education

    Top 7 Questions About Currency Trading ...

  4. Getting Started In Forex
    Options & Futures

    Getting Started In Forex

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center