A liquidation cascade occurs when one wave of forced position closures helps create the conditions for another. It can accelerate a decline through liquidated long positions or a rise through liquidated shorts.
How the feedback develops
An adverse price move can leave leveraged positions below their maintenance margin requirements. Closing longs can generate selling pressure; closing shorts can generate buying pressure. If available liquidity cannot absorb that flow without substantial price changes, other positions may become vulnerable and the cycle can repeat.
Crowded exposures, limited margin buffers and thin order books can strengthen this feedback. Falling collateral values can also weaken account support. Actual triggers depend on each venue's reference prices, margin mode and risk rules; the latest traded price alone does not determine every liquidation.
Why the outcome is uncertain
Not every liquidation becomes an immediate market order. Platforms may reduce positions partially, transfer exposure or use other procedures. These choices affect how forced risk reduction reaches the market.
A cascade describes a feedback mechanism, not proof that forced closures explain an entire price move. News and ordinary buying or selling may contribute too. The process can slow when liquidity absorbs the flow or exposure falls, but it does not guarantee a rebound, a particular endpoint or the liquidation of every leveraged position.