We Went To Texas To Meet A Tesla Investor Trading With Margin

I remember specifically researching margin debt. It was really late, maybe like 2:00 in the morning. When I learned what it was, I thought that it sounded too good to be true. My mom was still awake at the time. I explained to her what it was and she was like, 'wow, that sounds really cool.' That same night, I started using margin. More of the stock market is trading using other people's money. Margin debt is money investors borrow from their brokerage firm using the investments in their account as collateral, and that borrowing has been growing much faster than the market itself. Margin debt hit a record $1.5 trillion in June 2026, and that was up nearly 49% from a year earlier, while the S&P returned just about 21% over the same period. We have never seen Americans hooked on margin like this. This is crazy. Hy Luu is a retail investor who uses margin through Robinhood. By the end of August 2026, he held about $712,000 worth of Tesla shares and was carrying roughly $147,000 in margin debt. After accounting for that borrowing and his options positions, his portfolio was worth about $538,000. He calculates his total net worth to be more than $800,000. I'm very close to becoming a millionaire. My goal for investing in Tesla is to accumulate as much wealth as quickly as possible, to retire as soon as possible. What do you say to those that would say that what you're engaging in could be some form of gambling? It is gambling. What I'm doing is risky. I don't recommend anyone do it. But the risk doesn't stop with individual investors. When margin debt rises quickly, history shows the broader market can become much more vulnerable to declines. Since 1960, whenever margin debt rose more than 45% year over year. Out of the six times that happened, five times, there were declines in the stock market. That just adds to the broad risk that the stock market is facing, because we have this increased activity in margin debt. So why are reported margin balances so high? And what happens when an investor uses six figures of borrowed money to make a concentrated bet. I came to Houston to find out why one 29-year old engineering consultant borrowed six figures to buy stock, and how the risk of a margin call eventually brought his family's home into the equation. Hey, Sean. Hey, Hy. Nice to meet you, too. How are you? Hy's decision to invest in Tesla began gradually. I started accumulating Tesla shares in December 2019. That's when I first bought my first Tesla shares. And I didn't immediately started going into margin debt. At first, he considered the conventional approach of spreading his money across index funds and other diversified investments. I was like, this is too slow of a return. I want to take on more risk. And I learned that I have a very high risk tolerance. So a couple of months later, I went all in on Tesla. Everything changed for he went about five years ago. He discovered margin. I went really crazy. You know, interest rate was 2.5%. Stock was going up. And so I was like, there's no way I could lose its buy more Tesla shares. I need more Tesla shares from May 2021, up until the end of that year, I had amassed over $110k of margin debt. Then I started paying on my margin debt because I realized that the interest rate was going up. It was becoming more expensive to borrow money. Also, the stock had gone down. Hy calls the point where Tesla falls low enough to trigger a margin call. His "death price." If the value of his investments falls far enough, his brokerage can require him to put up more money. And if he can't, it can sell his investments to cover what he owes. In July 2022, I calculated my death price to be $173 per share, split adjusted, and at the time Tesla was $272. And I realized I was like, I could potentially be in trouble of getting a margin call if Tesla falls below my death price. And Tesla was at the time falling very sharply. Brokerages require investors using margin to keep a minimum portion of the account as their own money, rather than borrowed money. Under FINRA's rules, that minimum is generally 25%. Though brokerages often require more. So let's say a brokerage requires at least 40% to be equity. An investor buys $10,000 worth of stock using $5,000 of their own money and borrowing the other $5,000. But if the stock falls, let's say 20%, that investment is now worth $8,000. The investor still owes the brokerage $5,000. That would drop the equity in the account below the threshold, triggering a margin call. They may have to add money, add securities, or pay down some of the loan. If they don't, the brokerages can sell investments in the account to cover what it's owed. He says he's been thinking about this investment over many decades, but a margin call can happen during a much shorter time frame. Even if he's right about Tesla, if there's just too much velocity on the downturn and he gets a margin call, he won't have the ability to hold it through the period he needs to hold it through to be right in the end. I knew I needed to pay down my margin debt. I took out a loan on my house, so I refinanced the house to get access to an extra $30k of capital, and I used that to pay down my margin debt. But Hy wasn't the only one taking on that risk. When he decided to come to you and say, you know, I think I want to take out a loan to refinance the house, I want to put my name on the mortgage. What was your reaction to that? He explained to me about the margin. He wanted to have the money in hand just in case. So then I just let him because he's my son and because I believe in him. Have you still showed any sort of concern or worry about his investing decision? I still a little bit concerned when I see the Tesla price going down. You know, I was concerned, I was worried, but he's very calm. By the end of next year, hopefully. My plan is to pay off the entire margin debt, and I will own all of these shares outright. So why exactly is margin debt hitting record highs? Some of it can be explained by saying that gains beget gains. When people see the stock market keep going up, they're inclined to take on more risk and just hope that it all works out. Leveraging a leveraged product means you've got an enhanced return, so they're all being rewarded for it right now. There's more and more signs popping up every day that if you own assets, you're going to be in a better position than working hard. You look at inflation and you look at how your wage growth just keeps falling behind on it. So in the big picture, it makes a lot of sense why individuals, specifically retail investors, keep gravitating towards this margin debt. This is like a drug. And I think people just can't get enough of it in this economy. On top of that, brokerages have made it easier for people to borrow. Robinhood has made a really concerted effort to go after customers that are actively using margin because they're the most active traders. Robinhood's margin book more than quadrupled in two years, growing from $5 billion in the second quarter of 2024 to a record $21.6 billion in the second quarter of 2026. Robinhood notes that came during a period of broader growth across its platform. Total assets grew more than two and a half times, while retirement assets nearly quadrupled. From Robinhood's perspective, margins a great product, it's very low risk because you have the collateral sitting next to you. And so if there's an issue, it's moving in real time. That's different than a lot of other type of lending where collateral is not able to be liquidated or a person's credit profile is changing real time and you don't even know it. If you look at the offers that Robinhood has had in the market over the past couple of years, it's been targeting those customers with very low margin rates, very high yields on their cash, having very little friction in investing and having everything at your fingertips, and then having a really seamless mobile experience where it's not clunky plays a big part of that. A Robinhood spokesperson told CNBC that its promotions are not specifically aimed at margin traders. They're designed for a broad range of customers. The company also says investors must pass an eligibility review to use margin, and that it provides tools to help them understand their leverage and risk. But making margin easier and cheaper to use can also put more responsibility on the investor to understand the risk. If customers that are not sophisticated use margin and are not making sophisticated investments, then in theory they could have an issue and that could knock them backwards in terms of their investing future. You want to provide access, you want to educate people, but also you want people to have good financial outcomes. This is gambling with an asterisk. Somebody else can do the exact same thing that I'm doing, like literally the exact same bias, but it could be gambling on their end if they're not fully understanding the risks that they're taking. I think that's when it's called gambling. But when you do, it's a little less gambling. A record amount of margin debt isn't necessarily alarming on its own. When the stock market is worth more overall, investors can carry more debt without leverage being necessarily unusually high. There's a very strong relationship between absolute margin balances and absolute levels of US equity market cap. If you look at the chart, they both go in the same direction. So obviously US equities are in the zip code of all time highs. And so therefore it's not surprising that overall margin balances would be correlated directionally with that. There are pockets of the market that are clearly highly speculative. We're probably marginally above average. But the historical relationships aren't ringing alarm bells right now. Not all of the increase comes from new borrowing decisions. Some of it happens automatically as prices move, or as large firms adjust their borrowing to maintain the same level of leverage. So not many Wall Street insiders are hitting the panic button yet. But some experts think the rise in margin debt could be leading to unpredictability in the market. This rise in margin debt has been happening for the past 12 months, so it's been incremental pressure that's being added to the overall stock market. Some days I've noticed this year, when you can't quite put a finger on what's going on in the stock market, it's margin debt, most likely. It's influencing the overall direction of the market, and we don't even fully understand how because it's being done on the back end in a lot of ways. The broader market risk appears when many leveraged investors come under the same pressure at the same time. Once prices begin falling, it can intensify and move in a highly leveraged market. So like the premise of gains beget gains, it turns into losses, beget losses. And that's what's troublesome. I don't really pay attention to the macro economics that closely. It doesn't affect my investment decision, because the only thing I've ever been doing is buying and accumulating as many shares as possible.