In trading, the term capitulation denotes the act of surrendering losing positions at the end of a major negative trend in rates due to panic or margin calls.
Capitulation typically occurs when investors who purchased investments cannot afford to hold those investments through a sustained period of decline in their market value.
Example: During the Bitcoin boom of 2017, many investors borrowed heavily or used high amounts of leverage in order to invest in Bitcoin, believing that it would continue to gain in value at previous rates. When the value of Bitcoin took a downwards turn, the decline in its value as a security meant that many investors could no longer meet margin calls or sell their bitcoin at a profit to repay loans. These investors were forced to capitulate – or sell their Bitcoin investments at a loss – because they could not afford to hold it in hopes of the price recovering over the long term.
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