Leverage Unwind

Definition ∞ A leverage unwind refers to the forced liquidation of highly leveraged trading positions, typically triggered by significant price movements in the underlying assets. This process occurs when collateral values fall below maintenance margins, prompting exchanges or lending protocols to automatically close positions to prevent further losses. Large-scale unwinds can accelerate market downturns by creating cascading sell pressure. It is a common occurrence in volatile crypto markets.
Context ∞ News often reports on leverage unwinds during periods of high market volatility, explaining how these events contribute to sharp price corrections in cryptocurrencies. Analysts monitor leverage ratios and funding rates as indicators of potential market instability. The impact of these unwinds on various digital assets and the broader market structure is a recurring theme in financial reporting.