Forced Liquidation

A compulsory conversion of assets to cash or its equivalent because of unforeseen trading outcomes.

A forced liquidation, also known as forced selling, is the process by which a trader is forced to liquidate their assets due to unexpected circumstances. More often than not, the trader’s assets are converted to cash by the broker in order to reduce the risk of losses. This happens when the investment does not meet up with expectation, will no longer yield profits, or is likely to collapse and bring about significant losses.

Forced liquidation can come about because of bankruptcy. In this sense, it is similar to a sellout where assets are also forcely sold or converted to cash to salvage a trading situation.

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