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What Is the Impact of Forced Liquidations on Derivative Markets during a Spiral?

Forced liquidations, especially in futures and perpetual contracts, involve the automatic selling of collateral or positions by the exchange to prevent the account balance from falling below zero. This process dumps large quantities of the underlying asset onto the market quickly.

The sudden, large supply shock further drives down the price, creating a negative feedback loop that triggers more liquidations across the market.

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