A leverage washout describes a rapid market event where a significant number of leveraged trading positions are forcefully closed, or liquidated. This occurs when prices move sharply against the positions of traders using borrowed funds. The cascade of liquidations often intensifies price movements, leading to further forced closures. It results in substantial market volatility and investor losses.
Context
Leverage washouts are frequently reported in crypto news during periods of extreme market volatility, especially following unexpected price drops. These events can significantly impact market structure and sentiment, often clearing out excessive speculative positions. Analysts monitor funding rates and open interest to anticipate potential washouts, which can signal short-term market bottoms.
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