How Does High Volatility Increase the Risk of Slippage in a Highly Leveraged Position?
High volatility causes rapid and large price swings, which quickly consume the available liquidity on the order book, leading to shallow market depth. When a highly leveraged position is liquidated, the resulting large market order to close the position executes in this shallow market.
The combination of the large order size and the depleted liquidity results in significant slippage, often causing the liquidation to execute at a price far worse than the margin account can cover.
