Long squeeze

A long squeeze is a rapid price drop that causes many long positions to close at the same time. Those extra sales can temporarily push the price even lower.

What is a long squeeze?

A long position is a trade in which someone expects the price to rise. If the price falls instead, the trader loses money.

Many long positions use leverage. This lets someone open a larger position with a smaller amount of money. As a result, gains and losses can grow faster.

If the price falls too far, a crypto exchange may automatically close the position. This is called liquidation. When many positions close at the same time, extra sell orders are created. This can turn an initial drop into a wave of selling. So a long squeeze is more than just an ordinary down day.

An example of a long squeeze

Suppose many traders have long positions because they expect the price to rise. Then the price falls unexpectedly.

Some traders sell on their own to limit their losses. Other positions are automatically liquidated because there isn’t enough collateral to support them. All these sales put extra pressure on the price. As a result, even more long positions may be closed. That’s the selling cascade of a long squeeze.

Why is a long squeeze important in crypto?

A long squeeze can make a price drop happen quickly and sharply, especially when traders use leverage. With high leverage, even a small drop can sometimes be enough to trigger liquidation. An order in a fast-moving market may also be filled at a worse price than expected. This is called slippage.

In crypto news, a long squeeze is often mentioned when there’s a sudden drop and many liquidations. That doesn’t automatically mean liquidations are the only cause. News, regular sell orders, and a lack of buy orders can also play a part.

If you hold crypto without a loan, margin, or derivatives, its value can still fall. But your position won’t be automatically liquidated. That risk mainly applies to positions that use leverage.