It's pretty simple really. People who are trading on margin are gambling. If you run a casino, you are trying to maximize your profit. If you run a margin shop, you have a list of all the current folks and their bets, including knowing various points at which they will have margin calls and liquidations. It's not too hard to run a script that determines where you need the price to go to maximize those liquidations.
If a lot of people have recently shorted the LTC/BTC trade pair, you want LTC to go up so they will lose their bets. The only question now is how to best move the market. I say "the market", but really I mean your market. It's your shop after all.
How you move the price on your market depends on how much of a whale you are. Chances are you didn't get into this game solely with a handful of pocket change. In fact it's much more likely that you approached wealthy backers to put some capital down. Why not? The returns here are sensational.
So your script is telling you that if the LTC price goes up by 20% you can give a fair number of your gamblers a haircut. In comes the stash of BTC and orders are placed, buying up the LTC. Momentarily there is a spike on your exchange, and not on others. Ever seen this behavior in markets before? This thing is simple enough to fully automate. Automatic market making. Easy money.
Hypothesis: This behavior of margin shop operators is what drives short term prices in ALL markets from commodities to stocks to currencies.
So far we have a nice straightforward operation, being run with real capital and real orders. However I've barely scratched the surface here. Remember that a lot of traders are leaving funds with you. This gives you additional leverage. Accounts can be created on your exchange which hold funds that aren't real, i.e. can't be withdrawn. Your enemies here are the flying fish who can arbitrage your market moves on other exchanges. Determining exactly how far you want to push this seems like a dark art. It's my guess that running this thing with full reserve is already profitable enough and not many risk going further. However, if you see one margin shop's price get substantially away from other exchanges without immediately bouncing back, you know the shop has been caught rigging too far. Chances are they are suspending withdraws and pulling out the cold storage / rich friend phone calls in desperation.
Don't get zhou tonged!