Liquidation Level as Risk Management
The liquidation level helps manage risk and was developed to protect traders and dealers from significant losses beyond a preset limit. When a trader's account funding reaches the liquidation level, all positions the trader holds will automatically close at the best available rate. The levels that can trigger this action depend on the broker.

Trading in currencies and securities often calls for the use of leverage.

The initial upfront trading amount, known as the margin, is needed to access the foreign currency market.

If there's extreme market volatility, wide price swings can result in a rapid succession of margin calls and significant losses.

When a dealer handles trades for clients on their behalf, the dealer is taking on the risk of potential losses should the traders lose money. Another risk to the dealer is that the trader won't be able to repay the borrowed funds used to initiate their trades. The liquidation level protects the dealer and trader and assures dealers that they have mitigated their exposure to potential losses.