Leverage flush
What is a leverage flush, and why does one sharp hour sometimes clear out a whole side of the market?
In plain words
A leverage flush is a fast price move that forces traders holding borrowed or leveraged positions on the losing side to close them, often all at once. As those positions unwind, their selling or buying adds fuel to the move, so the price overshoots before stabilising.
Why it matters
Flushes can trap the unwinding of crowded positions rather than express new information about value. Traders using high leverage face liquidation at specific prices, so a move through those levels can look far more violent than the underlying change in sentiment warrants, and the market can settle quickly afterwards.
In a real week: ETH, week of 24 April 2023
In the week of 24 April 2023, ETH opened at 1862.01 and reached a high of 1964.72 on Wednesday at 12:00 UTC. By Wednesday at 20:00 UTC it fell to 1785.0, with a largest single-hour move of -6.05% at 19:00 UTC. Funding averaged 0.0055% per eight hours and dipped to -0.0022%. The week closed at 1870.09, up 0.43%, in the middle third of its 10.07% range, on volume about equal to its prior 12-week average. The week's largest one-hour move and its low both landed on Wednesday late in the UTC day.
A common mistake
Reading a flush as the start of a sustained trend. The rapid move often reflects position closure at set price levels, and the market can return near where it started once that pressure clears.