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Derivatives are usually leveraged instruments, allowing traders to take bullish (long) or bearish (short) positions worth more than the amount they have deposited as a margin at the exchange. Leverage is a double-edged sword, magnifying both profits and losses. It also exposes traders to liquidations, or forced unwinding, due to margin shortfalls. Furthermore, mass liquidations often lead to exaggerated bullish or bearish moves, so the greater the use of leverage, the higher the probability of liquidations injecting volatility into the market.
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