Definition ∞ Forced Liquidations occur when a trader’s leveraged position in digital assets falls below a predetermined maintenance margin level, automatically closing the position to prevent further losses. This automated process is executed by the exchange or lending protocol to protect the lender’s or platform’s capital. It often happens rapidly during periods of high market volatility. Such events can trigger cascading price movements across the crypto asset market.
Context ∞ News often highlights Forced Liquidations during significant market downturns or sudden price corrections in the cryptocurrency market. These events can exacerbate market volatility and affect overall market sentiment. A key discussion revolves around the mechanisms and thresholds that trigger these liquidations, and their systemic impact on decentralized lending platforms. Future developments in risk management tools and more sophisticated collateral types aim to mitigate the severity and frequency of these automated closures.
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