Let’s say you open your phone, check the chart, and Bitcoin is suddenly dropping like a stone. No big news, no warning, just a straight red candle. A lot of the time, liquidations are the reason behind that kind of move.

Liquidation happens when your leveraged trade gets closed by the exchange automatically. It usually shows up in futures or margin trading, where you’re trading with borrowed funds. You put in a small amount as margin, and the exchange lets you control a bigger position. That can feel exciting when you’re right, but it also means even a normal price move can turn into a problem.

Imagine you go long because the market looks bullish. For a while, it works. Then the price dips a bit. Your position is still open, but your margin is shrinking because your losses are building up. At some point, the exchange decides you don’t have enough buffer left to keep the trade safe. So it closes your position for you. That’s liquidation.

Now here’s where it gets messy. When lots of traders are in the same direction with high leverage, one dip can trigger a wave of liquidations. Those forced closes add more selling pressure, which pushes the price down again, which triggers even more liquidations. It’s basically a chain reaction that can turn a small drop into a sudden crash.

If you want to understand these moves better, it helps to follow daily market explainers on Coinography. 

Once you understand liquidations, price action starts making a lot more sense.

Let’s say you open your phone, check the chart, and Bitcoin is suddenly dropping like a stone. No big news, no warning, just a straight red candle. A lot of the time, liquidations are the reason behind that kind of move.

Liquidation happens when your leveraged trade gets closed by the exchange automatically. It usually shows up in futures or margin trading, where you’re trading with borrowed funds. You put in a small amount as margin, and the exchange lets you control a bigger position. That can feel exciting when you’re right, but it also means even a normal price move can turn into a problem.

Imagine you go long because the market looks bullish. For a while, it works. Then the price dips a bit. Your position is still open, but your margin is shrinking because your losses are building up. At some point, the exchange decides you don’t have enough buffer left to keep the trade safe. So it closes your position for you. That’s liquidation.

Now here’s where it gets messy. When lots of traders are in the same direction with high leverage, one dip can trigger a wave of liquidations. Those forced closes add more selling pressure, which pushes the price down again, which triggers even more liquidations. It’s basically a chain reaction that can turn a small drop into a sudden crash.

If you want to understand these moves better, it helps to follow daily market explainers on Coinography. 

Once you understand liquidations, price action starts making a lot more sense.