Liquidation Cascade
A liquidation cascade occurs when forced liquidations contribute to further price movement, which then causes additional leveraged positions to reach liquidation conditions. This can create a self reinforcing sequence of forced position closures.
Why it matters to you
Imagine price falls sharply. Long positions begin liquidating. Those liquidations create additional selling. Price falls further. More long positions reach liquidation. More forced selling occurs. This feedback loop can produce extremely fast market moves.
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