Useful equation to remember when thinking about leverage, forced trading and impact on prices is X = L * (L - 1) * R. Here R is the return on the underlying stock/futures/whatever, L is leverage and X is the trade required to maintain constant leverage after a price move.
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Either big leverage (high L) or moderate leverage and volatile stocks (high R) is enough to create interesting feedback effects that can lead to blowups in less liquid markets like VIX futures or mid cap stocks. Big leverage *and* volatile stocks is spectacular :)
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This should say they need to buy 100% of their initial *account* size, not position size.
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This is dangerous. not only is it a quadratic, it is a logistics recursion. You are creating a fractal that is highly unstable. Given nearly any input(L = 0 and 1 are stable, others are unstable depending on multiplier) you will get a random output at some point.
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