Liquidation refers to the process of forcibly closing a trader's position when they are unable to meet the required margin or collateral for their leveraged trades. When the value of the trader's position falls to a certain threshold, known as the liquidation price, the exchange or lending platform will automatically sell the trader's assets to cover their outstanding debt. Liquidation helps to protect the lender or exchange from potential losses due to defaulting traders. It is a significant risk management mechanism in margin trading and lending.