Forced Liquidation: When a Broker Sells Your Positions, and How to Avoid It

Forced liquidation is the closing of your positions by your broker or trading platform without your instruction. It happens in accounts that use borrowed money (a margin account, a leveraged crypto or forex account) when losses bring your equity below the level the lender requires. The firm sells to get its loan back; the loss is yours, and the sale often comes at a bad price, since it happens after a fall.

The U.S. margin rules behind it

The SEC's investor bulletin on margin accounts sets out three levels (Investor Bulletin: Understanding Margin Accounts, June 10, 2021):

The maintenance rule is what turns a fall in price into a forced sale. The loan does not shrink when prices fall, so every loss comes out of your equity, while the required equity is a share of a value that is also falling. A position bought half on credit loses half its equity on a 25% fall.

The 25% figure is in the text of FINRA Rule 4210: "25 percent of the current market value of all margin securities" in a customer account, with exceptions set out in the rule. Some firms ask more at the start too: the bulletin notes that "some firms require you to deposit more than 50 percent of the purchase price." FINRA also replaced the pattern day trader rules with intraday margin requirements, effective June 4, 2026, with a phase-in allowed until October 20, 2027 (FINRA Regulatory Notice 26-10); see day trading options for that change.

What your broker can do, according to the SEC

The bulletin lists what you accept with a margin account:

• "You can lose more money than you have invested."
• "Your brokerage firm may sell some or all of your securities without consulting you to pay off your margin loan."
• "You are not entitled to choose which securities your brokerage firm sells."
• "Your brokerage firm can increase its margin requirements at any time and is not required to provide you with advance notice."
• "You are not entitled to an extension of time on a margin call."

It adds that "your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm's maintenance requirement," and that even when a firm offers time, "it can sell your securities without waiting for you to meet the margin call." The bulletin notes that this holds "under most margin agreements."

At what price does the margin call come?

With a loan L and a maintenance requirement m, equity (value − L) falls below m × value when the value drops under L ÷ (1 − m).

The chart extends the table: a higher requirement and a larger loan both bring the call closer.

The SEC's own example uses $16,000 of securities bought with an $8,000 loan. If they drop to $12,000, equity is $4,000. At 25% maintenance, $3,000 is required and the account is fine; at 40%, $4,800 is required and the account is $800 short, so the firm may issue a margin call or sell. The same bulletin shows how losses can exceed the stake: a stock bought for $50 with $25 of your money falls to $15. You lose the $25, and "you would also owe your broker an additional $10 plus the interest on the margin loan."

Forced liquidation on crypto exchanges

Crypto platforms that offer leverage use their own rules, set in their terms rather than by FINRA. Kraken's support page is one published example (Kraken, Margin call level and margin liquidation level, last updated October 1, 2026):

• The margin call level "is approximately 80%, although the exact threshold varies in accordance with price volatility in applicable markets," and "margin call level notifications are not guaranteed."
• Below it, the client authorizes Kraken to liquidate "either all of your open positions, or only enough to get your margin level above 100%," in first in, first out order, "regardless of currency pair or whether the position is in profit."
• For spot margin, the liquidation point is 40% margin health. Kraken may liquidate "at the current index price of the market" with "a 2% liquidation fee," or send a market order to the book that pays the taker fee.
• The process "is automated, which means that once the process has started, it is not possible to stop it."

Its worked example: 1 BTC bought at 20,000 USD with 5:1 leverage, a trade balance of 10,000 USD, used margin of 4,000 USD. The margin call price, at 80%, is about 13,200 USD. With the liquidation formula on the same page, Entry Price − ((Equity − (Used Margin × 0.4)) ÷ Open Volume), the liquidation price is 20,000 − (10,000 − 1,600) ÷ 1 = 11,600 USD: a drop of 42% from the entry (our calculation from Kraken's inputs). Other exchanges use other levels and fees; read the page of the one you use.

When many leveraged positions are liquidated at once, the forced selling can push the price down further and trigger more liquidations; on the long side this is a long squeeze. The higher the leverage, the smaller the move that does it, as shown in 1:500 vs 1:200 leverage.

How to avoid a forced liquidation

1. Use less of the loan than allowed. On the $10,000 example, a $2,000 loan instead of $5,000 moves the 25% margin call from $6,666.67 to $2,666.67, a 73.3% drop.
2. Know your margin call price before entering, with the formula above and your firm's real requirement.
3. Set your own stop above that price, so you choose the exit and the size of the loss. See position size.
4. Keep cash available if you intend to meet a call, and remember the firm may not wait.
5. Read the margin agreement: requirements per security, interest, and whether the firm can lend your shares.

An account without a loan cannot be margin-called; the trade-offs are explained in cash account vs margin account. More definitions are in our trading concepts.