Liquidations

What gets liquidated, when

Every leveraged perp position has a liquidation price, the spot level at which the position's margin goes to zero. When price touches that level, the exchange's liquidation engine closes the position at market. For longs, liquidation triggers as price falls; for shorts, as price rises.

Liquidations are a second-order flow: they happen because price moved, not as a cause of the move. But once they start, they become reflexive, long liquidations sell into a falling market, which triggers more long liquidations, which sells more. That's the cascade.

How to read the panel

The liquidations panel splits long-side and short-side liquidations into two coloured series, both denominated in dollar notional. Bars spike up on cascade events; quiet periods are basically flat.

• Long liquidations spike, longs are getting forcibly closed. Pair with a falling price candle and a falling CVD: the picture is a flush. Often capitulation; often local lows. Watch for the next hour's OI to drop alongside (long unwind, see OI).
• Short liquidations spike, shorts are getting squeezed. Pair with a rising price candle: short cover. Often the cleanest fuel for trend continuation, since the move is funded by buying-to-close.

The liquidation map

The pro terminal's liquidation map (/liquidations) is a different read of the same data, it doesn't show the history of what's already liquidated, it shows the potential liquidations stacked at every price level for the active book.

The brighter / fatter a price level on the map, the more notional would get closed if price reached it. Big bright bands act like magnets, once price gets close, the cascade dynamics pull it in, burn the liquidations, and often reverse from the other side.

What to watch for

1. Big stacked liquidations just above current price, short squeeze fuel. Most reliable when funding is also negative (shorts already paying carry).
2. Big stacked liquidations just below, long flush fuel. Most reliable when funding is hot (longs paying carry, leveraged crowd).
3. Liquidation cascade just printed, the opposing side often trades against the cascade direction in the following 1-3 hours. The flushed crowd has been cleared; the other side is now lighter and the next imbalance can pull price.