Margin Call Cascade

A Margin Call Cascade is a rapid series of liquidations that occurs when the falling price of an asset triggers automatic margin calls on leveraged positions, leading to further selling. In derivatives markets, this is a self-reinforcing cycle: liquidations push prices lower, which triggers more liquidations, which pushes prices even lower.

This is particularly lethal in the cryptocurrency market due to the high prevalence of retail leverage and 24/7 trading cycles. When the cascade begins, the speed of the decline often outpaces the ability of liquidation engines to execute orders efficiently.

This can lead to bad debt within the lending protocol or exchange, as the collateral value drops below the amount owed. To mitigate this, many platforms implement circuit breakers or dynamic liquidation thresholds.

It is a classic example of how leverage amplifies market movements and creates systemic instability.