Define a “Liquidity Crisis” and Its Link to Margin Call Amplification.
A liquidity crisis is a severe market condition where an asset cannot be bought or sold quickly enough without causing a significant change in its price. It is characterized by a lack of buyers and a collapse in order book depth.
Margin calls amplify this crisis because they introduce a massive, non-discretionary wave of forced selling, overwhelming the limited buying interest and causing prices to gap down sharply.
Glossar
Severe Market Condition
Condition ⎊ A severe market condition within cryptocurrency, options, and derivatives signifies a period of heightened systemic risk characterized by rapid and substantial price declines, diminished liquidity, and increased volatility across multiple asset classes.
Liquidity Crisis
Contagion ⎊ A liquidity crisis within cryptocurrency, options trading, and financial derivatives frequently manifests as systemic risk, where the inability of one participant to meet obligations rapidly propagates through interconnected markets.
Crisis
Contagion ⎊ A crisis within cryptocurrency, options trading, and financial derivatives frequently manifests as systemic risk, propagating through interconnected networks via margin calls and forced liquidations.