What rising margin debt means for stocks
A personal account of an investor using margin debt to purchase Tesla stock illustrates the risks and potential rewards of leveraged trading. While the investor saw significant net worth growth, the story highlights the dangers of margin calls during market volatility.
Why it matters
It serves as a cautionary tale for retail investors regarding the psychological and financial risks associated with borrowing money to invest in volatile equities.
HOUSTON — During a late night at home in May 2021, Hy Luu, a 29-year-old engineering consultant, was researching how to obtain more capital to invest in shares of Tesla .
That's when he discovered margin investing: the act of borrowing money from a broker to buy securities such as stocks, while using existing investments as collateral. Borrowing would give him more buying power, and he could pay it back as the stock appreciated. The main risk would be a margin call, or having to deposit more money into the account, if its value fell.
It was all too good to be true, Luu thought.
Get smarter about the news
Sign up free for a feed built around what you actually care about, Dive Deeper research on any story, and the full text of every article.
Create free accountAlready have an account? Sign in