 |
Investopedia explains 'Margin Debt'
1. When setting up a margin account with a stock brokerage, the typical maximum for margin debt is 50% of the value of the account. In order to prevent a margin call (a request to raise collateral in the account), the margin debt must remain below a specified percentage level of the total account balance, known as the minimum margin requirement.
Not all securities are available to be purchased with margin debt, especially those with low share prices or extreme volatility. Different brokers have different requirements in this area, as each may have its own list of marginable securities.
2. Margin debt levels, and their rate of change, are sometimes used as an indicator of investor sentiment because margin debt rises when investors feel good about the prospects in the stock markets. In the past, margin debt levels have peaked at the same time market indexes reached relative peaks. When markets decline in a hurry, a large number of margin calls will usually come due, which can add to already heightened selling pressure.
|
