How Does a High Margin Call Frequency Affect Market Volatility?

A high frequency of margin calls can exacerbate market volatility. When many traders receive margin calls simultaneously, they are forced to sell assets to post additional collateral or face liquidation.

This concentrated, forced selling pressure drives prices down rapidly, which in turn triggers more margin calls and liquidations in a cascading effect. This feedback loop creates a 'liquidation spiral,' significantly increasing market volatility and leading to sudden, sharp price drops.