Derivatives are often leveraged devices, permitting merchants to take bullish (lengthy) or bearish (brief) positions value greater than the quantity they’ve deposited as a margin on the trade. Leverage is a double-edged sword, magnifying each income and losses. It additionally exposes merchants to liquidations, or compelled unwinding, attributable to margin shortfalls. Moreover, mass liquidations usually result in exaggerated bullish or bearish strikes, so the larger using leverage, the upper the chance of liquidations injecting volatility into the market.
