Cascade Liquidation
A chain reaction in which forced closings push the price further, which then triggers more forced closings in the same direction.
When a leveraged position is liquidated, the venue closes it by trading into the order book, which moves the price toward the next cluster of liquidation levels. Because leverage tends to be concentrated at round numbers and at similar entry points, one wave of closings can set off the next, and the move can travel far beyond what any news would justify. Thin books at weekends and during regional overnight hours amplify the effect, as does an outage or a delayed price feed on a venue whose mark price lags. The cascade stops when depth is sufficient to absorb the remaining forced flow, at which point prices often retrace part of the move.
In der Praxis
A sharp fall that starts in derivatives markets can be identified as a cascade when open interest drops steeply during the move, showing positions being closed rather than opened.
Das häufige Missverständnis
A cascade does not require any news; it is a mechanical feedback loop between margin rules, mark prices, and shallow order books.