What is Margin Debt?
Margin Debt is the total money borrowed by investors from their brokers to buy stocks. This is done using margin accounts. Margin debt on the New York Stock Exchange (NYSE) is often used as a Market Sentiment indicator and interpreted in a contrarian fashion. For example, extreme, collective margin debt levels (which indicate high levels of investor optimism) have often coincided with market tops – see 2000 and 2007. Unfortunately, as the market declines, high margin debt levels can add further selling pressure as investors will receive “margin calls” forcing them to sell.