Short squeezes and the mechanics of futures from the exchange’s perspective. What is a short? Essentially, you borrow a token you don’t own and sell it. The exchange allows you to sell the asset, and if it’s leveraged, adds more funds. They take a commission for this.If everything goes as planned and the token’s price drops, you close the position. At this point, the exchange essentially repurchases the same amount of the asset you sold (shorted) during the opening of the short. For you, the deal is closed, and you make a profit – the difference between the sale and repurchase, minus the exchange commission.If you short and the token rises, you get liquidated. The process is the same; you borrowed and sold the token (opened a short), but when your margin runs out, you face liquidation. The exchange is then forced to repurchase the same volume you borrowed and sold during the opening of the deal.If a massive accumulation of short liquidations occurs at a certain level, the token’s price reaches that point, triggering exchanges to buy coins from the market due to traders’ forced closures – a short squeeze. This leads to a sudden rise.I’ve emphasized the importance of monitoring liquidation levels, especially with small-cap trading. Market makers and manipulators often use this data. Investing in a coin’s pump to reach a liquidation accumulation zone allows them to sell at a higher sum than they invested – a straightforward indicator.And the reverse works similarly.
