Liquidation Level

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.

BREAKING DOWN '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.