Cryptocurrency Liquidation describes the forced closure of a leveraged trading position in cryptocurrency due to insufficient collateral to cover potential losses. This automatic process occurs when an asset’s price moves adversely against a trader’s position, reaching a predefined liquidation price. It serves to protect lenders from accumulating bad debt.
Context
Cryptocurrency liquidations are a significant factor in market volatility, often leading to rapid price declines as large positions are sold off. Monitoring liquidation events offers a window into market leverage and potential cascading price movements.
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