Liquidity Grab refers to a situation where market participants suddenly rush to liquidate their positions in a particular asset, leading to a significant decrease in the asset's liquidity. This can occur for various reasons, such as a sudden shift in market sentiment or a change in regulatory policies.

During a liquidity grab, market participants may sell their positions at any price, leading to a sharp decline in the asset's value. This can create a vicious cycle, as falling prices trigger more selling, which further reduces liquidity and exacerbates the decline in price.

Liquidity grabs can be particularly damaging to markets that rely heavily on short-term funding, such as money markets, as a sudden lack of liquidity can cause a chain reaction of defaults and bankruptcies. Therefore, it is crucial for regulators to monitor markets and take appropriate measures to prevent or mitigate liquidity grabs.

A liquidity grab occurs when price movements trigger stop-loss orders or liquidations by briefly pushing beyond key support/resistance levels before reversing. Traders and algorithms target areas with high liquidity, where many stop orders cluster, to exploit market inefficiencies. For example, a sudden spike below support may trigger panic selling (or buying above resistance), allowing large players to fill orders at favourable prices before the price snaps back.

Common in forex, crypto, and futures markets, liquidity grabs often appear as "wicked" candlesticks on charts. While they create short-term volatility, they also present opportunities for traders who anticipate reversals. Understanding liquidity zones helps traders avoid false breakouts and manage risk more effectively.