Exchange Liquidations occur when a trader’s leveraged position on a cryptocurrency exchange is automatically closed due to insufficient margin to cover potential losses. This automated process prevents the trader’s account balance from falling below zero. Liquidations are typically triggered by significant price movements against the trader’s position. They can exacerbate market volatility, especially during rapid price declines.
Context
Crypto news frequently reports on large-scale exchange liquidations, particularly during periods of high market volatility, as these events can cascade and accelerate price movements. Understanding exchange liquidations helps explain sudden drops or spikes in asset prices. The volume of liquidations provides insight into the overall leverage present in the market and potential points of systemic risk.
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