Crypto liquidations, explained
A liquidation is the forced closing of a leveraged position. How liquidations happen, why they come in cascades and what long and short liquidations tell you.
What a liquidation is
When traders borrow to increase the size of a position, they post collateral, called margin. If the price moves against them far enough that the margin can no longer cover the loss, the exchange closes the position automatically. That forced close is a liquidation.
The higher the leverage, the smaller the move needed. At 50x leverage, a move of about 2% against the position can be enough.
Long and short liquidations
A long liquidation happens when the price falls and traders betting on a rise are forced out. A short liquidation happens when the price rises and traders betting on a fall are forced out.
When long liquidations dominate, the market has punished optimistic leveraged traders. When short liquidations dominate, it has punished pessimistic ones.
Why they come in cascades
Each liquidation is a market order. A forced sale of a long position adds selling pressure, which can push the price down further and trigger the next group of liquidations. This chain reaction is why crypto prices sometimes drop or spike very quickly within minutes.
How to read liquidation data
Large liquidation totals show where leverage was crowded and has now been flushed out. Blockdeck VIP streams liquidations as they happen and totals them by side over 24 hours. Exchanges publish only part of their liquidation data in real time, so all public totals, ours included, are best read as observed lower bounds.