Liquidation Pressure refers to the potential for leveraged positions in derivative markets to be forcibly closed due to insufficient collateral. In cryptocurrency markets, this occurs when the price of an asset moves significantly against a trader’s leveraged position, triggering margin calls that, if unmet, lead to the automatic sale of the underlying assets. This can create cascading sell-offs, exacerbating price declines.
Context
Liquidation Pressure is a frequently discussed factor influencing short-term price volatility in digital asset markets, particularly for highly leveraged trading instruments. Current analysis often focuses on identifying the thresholds at which substantial liquidations might occur and their potential impact on overall market stability. Traders and analysts monitor open interest and funding rates on derivative exchanges to assess prevailing liquidation risks.
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