Liquidation

The word covers two events that look the same on a statement and are entirely different in kind. A voluntary liquidation is a holder closing a book of positions, for any reason at all. A forced liquidation is the firm closing positions on the account's behalf, because equity has fallen to the level its rules require it to act at. In a margined account the second sense is the one usually meant, and the mechanism is the margin close-out.

The trigger is measured, not judged. The firm compares account equity with the margin currently in use and expresses the result as the margin level, a percentage that moves with every tick because equity includes the running unrealised result. A firm publishes a warning threshold and a close-out threshold, and once the percentage reaches the second the firm closes positions, in the order its rulebook states, until the level is restored or nothing is left open. The closes are sent as market orders and are filled at whatever prices are available at that moment.

The misreading that costs the most is treating this as a floor under losses. It is not a stop loss, it is not a promise, and it does not act on a level a holder chose. Because the closes are filled at the next available prices, a gapping market can carry the account well past the threshold before anything is executed, which is precisely how a deficit arises. Where negative balance protection applies as a regulatory requirement, it addresses that deficit after the fact and does not prevent the liquidation. A second and quieter misreading is direction: the threshold is measured on equity rather than on any single position, so a profitable position can be closed to relieve the account of the margin it was holding.