Margin Buying Adds to Stocks’ Decline
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Investors continued to take on more debt to buy stocks in September--which may now be coming back to haunt them.
Loans outstanding from New York Stock Exchange member firms to buy stocks rose 1.3%, to $250.8 billion, in September from August, the NYSE said Tuesday.
Borrowing to buy shares helped fuel a rally in January and February, and then contributed to stocks’ slide from March to May: As stocks fell, brokerages required borrowers to come up with more cash, or to sell their stocks, as the value of their accounts declined.
Such “margin calls” also are hitting the market now, analysts say, exacerbating the declines in many stocks. Brokerages may immediately require investors to put up more cash, and the firms have the right to sell margined stocks without investors’ permission.
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