A crypto liquidation occurs when a trader's account balance falls below the margin level required by the exchange. In this case, the exchange will forcibly close the trader's position (or "liquidate" the position) at the market price. This is done to cover the trader's losses.

The purpose of liquidation is to protect the trader and the exchange from further losses. By closing the position, it ensures the trader does not accumulate more debt. Liquidation may occur automatically or be triggered by a predetermined margin threshold set by the exchange.

It's important to note that a crypto liquidation can result in significant financial losses for the trader. Therefore, traders need to effectively manage their risk, closely monitor their margin levels, and employ risk management strategies to avoid or mitigate the possibility of encountering a liquidation.