Margin debt can be an indicator of excessive optimism or pessimism by equity investors. Historically during bull markets investors tend to borrow more pushing margin to very high levels. While using margin safely can be beneficial to some investors it is not for everyone. When equities are surging everyday margin can amplify gains but when the market declines it will lead to margin calls – which in turn, can cause forced selling if the margin calls are not met.
According to a recent news report, margin debt has increased by over 40% over the past 12 months. In the past when margin levels reached such high levels, market crashes occurred. The dot-com crash and the Global Financial Crisis are two examples. Currently margin interest rate is not cheap. At Fidelity, it goes from 11.825% to 10.075% based on loan balances. As stocks continue to rise, investors using margin are betting that the return on stocks will be higher than these rates they are willing to pay.
The below chart shows the total margin debt over the past 12 months from May 1999 through Mary 2026:
Click to enlarge
Source: Barchart, CNBC via Thinking Out Load, SYZ Group
