Liquidations: forced exits, and why they cluster

The biggest sell orders in crypto are placed by no one.

Leverage in one sentence

Trading with leverage means controlling a position bigger than your deposit, so a small move against you can wipe the deposit out. At 10-to-1 leverage, a move of roughly a tenth against the position is enough.

A liquidation is a forced market order

Before the deposit is fully gone, the exchange steps in and closes the position by force. That close is a market order nobody chose to place, sent at the worst possible moment, with no regard for price. A liquidated long becomes a forced sell into a falling market. A liquidated short becomes a forced buy into a rising one. Either way, the forced order pushes price further in the direction that caused it.

Why one triggers the next

Traders tend to use similar leverage at similar prices, so their forced-exit prices sit in clusters. When price reaches one cluster, the forced selling pushes it into the next, which forces more selling. That chain reaction is a liquidation cascade, and it is how a modest dip becomes a violent one in minutes. On the tape it reads like one side steamrolling the other, because for a few minutes it is.

A map of where forced exits are waiting

Because those clusters can be estimated in advance, they can be drawn: the liquidation heatmap marks the price zones where forced exits are likely waiting right now, given the leverage currently in the market. It is a model, not a prophecy, and it moves as positions open and close. The honest way to judge it is the same as everywhere else: replay real cascades and see, minute by minute, how price behaved around the marked zones.

See it live

Replay a real liquidation cascade from the archive.

Related: Open interest · Order flow