A leverage purge, often termed a long or short squeeze, describes a rapid market event where a sudden price movement forces the liquidation of numerous leveraged trading positions. When prices move sharply against heavily leveraged traders, their collateral becomes insufficient to cover potential losses, leading to automatic forced selling. This cascade of liquidations further accelerates the price movement, creating a feedback loop.
Context
Leverage purges are frequently reported in cryptocurrency markets due to the high volatility and extensive use of leverage in digital asset trading. News analyses often focus on the volume of liquidated positions, their impact on market sentiment, and the overall health of derivative markets. These events serve as a stark reminder of the risks associated with excessive leverage in volatile asset classes.
A recent, significant flush of excessive leverage has reset the crypto market, paving the way for a more stable and potentially bullish accumulation period.
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