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Question #313

Why do forced liquidations of leveraged positions, resulting in over $2 billion in losses, cause sharp swings in Bitcoin prices?

Category: General
They boost investor confidence by triggering automatic margin purchases at lower prices
Forced liquidations rapidly sell large leveraged positions amplifying price movements in markets
They ensure market stability by automatically balancing supply and demand for Bitcoin
They decrease Bitcoin volatility by locking large holdings during extreme market downturns

Why is this the correct answer?

This is correct because when leveraged traders can’t cover losses, exchanges automatically sell their positions at market prices. Beginners should understand that these large forced sell orders flood the market, driving prices down quickly. That sudden imbalance between sell and buy orders creates sharp swings.

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