Now if you buy on margin and the market drops sharply, you can get a margin call as there are limits of the ratio of margin to your portfolio worth. A margin call can force you to sell stocks while the market is declining (generally not a good thing). So excessive use of margin can exacerbate a stock market correction. I do not use margin.
So what do you think the total margin debt was in July 2007? I wondered myself. Here is the chart for 2007 (I think it pretty much speaks for itself):
End of month | Margin debt | Free credit cash accounts | Credit balances in margin accounts |
January | $285,610 | $90,340 | $156,190 |
February | $295,870 | $96,550 | $155,140 |
March | $293,160 | $99,690 | $161,890 |
April | $317,990 | $104,360 | $162,570 |
May | $353,030 | $109,030 | $176,200 |
June | $378,240 | $119,300 | $179,920 |
July | $381,370 | $122,740 | $205,830 |
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