NYSE January Margin Debt Falls Slightly From December

NYSE Margin Debt (Since January 2000)

Source: New York Stock Exchange

January's margin debt figure from the New York Stock Exchange was little changed from December, according to data released on Thursday morning by the NYSE. Margin debt for January came in at $197.1 billion, down just slightly from December's figure of $198.7 billion.

Given the market's rally in January, the slight downtick in margin debt is encouraging. Indeed, investors who might have been tempted by the nice gains made last month seem to have resisted the lure of using margin to boost those gains.

Margin debt is still historically high, but it's down significantly from its peak of $278 billion, which was reached in March 2000.

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Why This Metric Matters Buying on margin means borrowing money against your account to buy stocks. You might, for example, have $10,000 in cash but buy $15,000 worth of stock, using $5,000 of borrowed money from your broker. When stock prices are soaring, investors who borrowed against their accounts look like geniuses. But when the market begins to head south, investors who borrowed money to finance stock purchases may be subject to margin calls: Brokers demand that investors add money to their accounts so the collateral is sufficient to cover the erosion in portfolio value. If the investor doesn't have the cash, the broker will sell the stock, usually at falling prices. Those sales can accelerate the market's decline. As margin debt climbs -- especially to historically high levels -- it often serves as a warning sign that speculation is growing rampant in the market. Indeed, in March as margin debt reached an all-time high, it was flashing a warning sign that the market was overvalued. The Nasdaq , which reached an all-time high of 5132 on March 10, 2000, subsequently fell 50%. The S&P 500 has fallen as well since then, though not quite so dramatically.

How Often Updated on TSC Monthly, about the 15th of each month

Historical Info Margin debt on the NYSE reached an all-time high of $278 billion in March 2000.

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