Definition ∞ Short position liquidations occur when a trader’s short position in an asset is automatically closed by an exchange due to insufficient margin to cover potential losses. This typically happens when the asset’s price rises sharply against the short seller’s bet. To cover the margin call, the exchange forcibly buys back the asset, which further contributes to upward price pressure. These events can trigger a cascade, known as a short squeeze, intensifying price movements.
Context ∞ News reports on cryptocurrency markets often highlight short position liquidations as a significant driver of rapid price increases, especially during periods of high volatility. These liquidations can exacerbate upward trends, creating a feedback loop that propels prices higher. Understanding this mechanism is crucial for interpreting sudden market rallies and assessing market leverage.
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