In liquid markets the frequency or timing of settlement may not be expected to impact prices. However during illiquid periods with leveraged trading, marking to market can have a significant impact on price volatility and forced selling. While the assumption of efficient markets confers speculative traders with stabilizing attributes, liquidity or settlement trades can have destabilizing properties in the short run: traders buy when prices rise, and sell when prices fall. If there are lot of leveraged traders in the market, such forced selling can become cumulative, even without changes in trader price expectations or risk aversion. This paper simulates real time settlement in a leveraged market with zero-intelligent traders in a continuous double auction, stylized after a futures market. The model produces the emergent market phenomenon of volatility clusters and positive autocorrelation in returns which are more pronounced when traders are leverage.

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