Liquidation is the process of closing one position by opening a new transaction to offset it. This can be done to take profits, cut losses, or reduce exposure. Liquidation can be done manually or automatically.When liquidating a position manually, the trader will first need to calculate the required offsetting trade size. They will then place an order for this trade size in the opposite direction of their current position.For example, if they are long 100 shares of XYZ stock, they would place a sell order for 100 shares of XYZ stock. Once this order is filled, their position will be closed and they will have no further exposure to XYZ stock.Automatic liquidation is typically done by setting up a stop-loss order with your broker. This type of order instructs your broker to automatically close your position when it reaches a certain price level (the stop price).For example, if you are long 100 shares of XYZ stock with a stop-loss at $50 per share, your broker will automatically sell these shares once XYZ stock hits $50 per share on the open market.
