Margin Call Clustering

Margin call clustering occurs when a rapid decline in the price of an asset triggers a cascade of automated liquidations across multiple accounts simultaneously. In highly leveraged environments like cryptocurrency derivatives, many traders use similar liquidation thresholds.

When the market price hits these common price levels, a large volume of forced sell orders enters the order book at once. This influx of supply further drives down the price, which in turn hits the liquidation thresholds of even more accounts.

This creates a self-reinforcing feedback loop of selling pressure that can cause flash crashes or extreme volatility. It is a critical component of systems risk and contagion in digital asset markets.