Definition ∞ Short liquidation occurs in futures or margin trading when a trader’s short position in a digital asset is forcibly closed by an exchange due to insufficient collateral to cover potential losses. This happens when the asset’s price rises significantly, exceeding a predefined liquidation threshold. Forced liquidations can trigger a cascade effect, accelerating price increases as exchanges buy back assets to close positions. It represents a significant risk for traders employing leverage.
Context ∞ Short liquidations are a frequent event in volatile cryptocurrency markets, often reported in news as a driver of sudden price spikes. Analysts closely monitor liquidation data to gauge market sentiment and potential price movements. A key discussion involves the mechanisms exchanges employ to manage liquidation risks and the impact of these events on overall market stability.
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