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How Do Margin Calls Amplify Market Volatility in a Derivatives Market?

Margin calls force the sale of underlying assets or derivatives positions, increasing selling pressure. This sudden, non-discretionary selling adds supply to the market, pushing prices down faster than they would organically fall.

As prices drop, more margin calls are triggered, creating a feedback loop. This rapid, forced deleveraging cycle significantly spikes short-term market volatility.

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