Investors are borrowing unprecedented sums from brokerage firms to buy securities, increasing their buying power while exposing them to sharper losses if prices fall. A decline can trigger demands for more account equity or forced sales, potentially deepening the damage.
Houston engineering consultant Hy Luu uses margin to maintain a concentrated Tesla position. He began exploring margin investing in May 2021, after learning that borrowed funds could be used to purchase shares against existing investments. During Tesla’s 2022 decline, he refinanced his home and used $30,000 from the proceeds to reduce his margin balance and avoid a forced sale.
Luu, who lives with his mother, Kim Nguyen, has used margin for most of his nearly seven years investing in Tesla. He calls the strategy “gambling with an asterisk, ” but says his long time horizon, confidence in the company and calm temperament make panic selling unlikely. Tesla shares have gained more than 43% over five years to $375, though they remain about 25% below their record near $499.
The leverage also limited Luu’s ability to buy more shares when Tesla was trading at a lower price because he was focused on meeting his margin obligations. That trade-off illustrates how borrowing can increase exposure to a favored investment while reducing flexibility when prices move against the investor.
The figure includes borrowing by institutional investors such as hedge funds as well as retail investors, and can also reflect obligations tied to short positions whose values have risen.
Sam Huszczo, chief investment officer at SGH Wealth Management, said the market’s run of record highs is contributing to greater risk-taking in parts of the market. Davis, who owns an investing technology platform, described margin trading as borrowing against a clock that keeps running even when markets do not recover.
A Robinhood spokesperson said the company’s products are designed for a range of customers and rejected the idea that its transfer promotions specifically target people who trade on margin or encourage risky behavior. Nguyen, meanwhile, said she believes her son’s late father would have been proud of him.