Derivatives & Risk

What is a liquidation cascade in crypto?

A liquidation cascade is a chain reaction in which forced closures of leveraged positions push prices lower, triggering still more forced closures in rapid succession. When a leveraged trader's collateral falls below the required level, the position is automatically liquidated; the resulting selling can drive the price down enough to liquidate others. For example, a sharp drop can liquidate one tier of positions, whose sales deepen the fall and reach the next tier. These cascades can amplify volatility quickly and are a notable source of tail risk in leveraged crypto markets.

Crypto investments are subject to market risk and volatility. Past performance is not indicative of future returns. This is general information, not investment advice — consider your own circumstances or consult a qualified adviser before investing.