A liquidation happens when an exchange closes a leveraged trade because the trader’s collateral is too small to cover the loss. The trader loses the collateral, and the exchange sells or buys the position on the open market.
A simple example
A trader puts in 1,000 dollars and borrows 9,000 to buy 10,000 dollars of a coin. If the coin falls about 10 percent, the 1,000 is gone, so the exchange sells the position. That sale pushes price down a little more.
Why it moves the whole market
When many positions share the same liquidation price, closing the first ones pushes price into the next ones. This chain reaction is called a cascade, and it explains why prices can drop fast with no news.
How to use liquidation data
Large long liquidations after a fall often mark an exhausted move. Large short liquidations during a rise show a short squeeze. We cover that in What Is a Short Squeeze?.
What is open interest?
Open interest is the total value of futures contracts that are still open and not yet closed. Volume counts how much traded. Open interest counts how much is still held.
Four combinations
- Price up, open interest up: new money is entering the rise.
- Price up, open interest down: shorts are closing, the rise may be weak.
- Price down, open interest up: new shorts or trapped longs are building.
- Price down, open interest down: positions are closing, often near the end of a move.
Watch for extremes
Record open interest on a small coin often comes just before a sharp reversal. See What Are Crypto Liquidations?.
Funding rates explained
Perpetual futures have no expiry date, so exchanges use a funding payment to keep their price close to spot. Every few hours, one side pays the other.
The rule
When the rate is positive, long traders pay shorts. That means more traders are betting on a rise. When it is negative, shorts pay longs.
How to read it
Very high positive funding warns that longs are crowded and can be flushed. Negative funding on a coin that is rising can signal a squeeze, because shorts are paying to stay in.
How often
On most large exchanges the payment is every eight hours, though some pairs use shorter intervals.
What is a short squeeze?
A short squeeze happens when traders who bet on a fall are forced to buy back their positions as price rises. Their buying pushes price higher and forces more shorts out.
Signs to look for
Negative funding, rising open interest and a coin that stops falling on bad news. Shorts are paying to stay in and have little room to be wrong.
How squeezes end
They end when the shorts are gone. Late buyers are then left holding coins at an inflated price, and the price often gives back much of the move.
Latest liquidation stories
- XRP's Liquidation Map Leans Down 1.5x, XLM's Leans Down 3.8x 30 Sep 2026
- Ethereum $2,000 Level Is a Whale Liquidation Target 7 Apr 2026
- Ethereum Braces for $2.7B Liquidation Storm Amid Fusaka Sharding Breakthrough 4 Dec 2025
- Bitcoin Chip Selloff Sends BTC to $75,600 as Nasdaq Slides 5 Nov 2026
- Bitcoin Short Squeeze Lifts BTC Above $80,000 After Midterms 4 Nov 2026
- Binance Hack: $6.3 Billion Stolen, About $3 Billion Frozen 30 Oct 2026
- IOST Hard Fork Halt Was Followed by a 156% Run and a 29% Drop 22 Oct 2026
- XRP Estimated Leverage Ratio Falls 26% as Exchange Inflows Climb 21 Oct 2026
- Bitcoin Price Dips to $79.8K as CPI and PPI Both Run Hot 15 Oct 2026
- ETH Price Hinges on Two 4-Hour Closes After Nine ETF Outflows 11 Oct 2026
Questions readers ask
Can spot buyers be liquidated?
No. Only leveraged positions can be.
Is high open interest bullish?
No. It means many open bets, in either direction.
Is funding a fee to the exchange?
No. It is paid between traders.
Is a squeeze a sign of strength?
It is a sign of forced buying, which is different from lasting demand.