The Machine Behind the Margin Call

Most crypto speculation doesn’t happen in the spot market, where buyers own actual coins; rather, it happens in perpetual futures, derivative contracts that let a trader control, say, $100,000 of bitcoin exposure with $10,000 of margin. When the price moves against the position far enough that the collateral can no longer cover potential losses, the position is automatically sold into the open market.

That automatic sale is where cascades begin, as each forced sell pushes the price down a little more, which pushes the next trader’s position below its maintenance threshold, triggering another forced sell. In a market with billions of dollars of open interest (the total value of outstanding…