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Can a Futures Market Lead to Excessive Volatility in the Spot Market?

Yes, a highly leveraged futures market can contribute to excessive volatility in the spot market. Large, sudden liquidations of futures positions, often triggered by margin calls, can force traders to rapidly buy or sell the underlying asset to cover their positions or rebalance their hedges.

This can create rapid price swings and cascade effects in the spot market, particularly in less liquid assets.

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