Investors have been going on a record borrowing binge over the past year, amplifying the artificial intelligence-fueled bull market while adding a fresh layer to U.S. stocks.
U.S. margin debt—what investors borrow from their brokerages to purchase securities—climbed by 54 percent from a year ago, or almost $455 billion, to an all-time high of more than $1.42 trillion in May, according to fresh Financial Industry Regulatory Authority data.
Margin borrowing tends to accelerate when markets reward risk. Increasing equity prices expand investors’ borrowing capacity and strong returns make leverage feel manageable for typical traders.
High-risk leveraged vehicles have also ballooned this year.
In the first half of the year, trading volumes of U.S.-listed leveraged and inverse exchange-traded funds (ETFs) have surged to 50 percent higher year over year, Goldman Sachs reported earlier this month. This is equal to about $45 billion per day.
These funds can be highly risky for traders, as a 30 percent decline in the underlying stock can turn into a 90 percent loss.
Options trading—a strategy that involves buying or selling contracts that give you the right to buy or sell a stock at a set price in the future—rose by more than 20 percent year over year in the first quarter, Chicago Board Options Exchange reported in May.
Like leveraged or inverse ETFs, options trading can result in enormous losses.
The Financial Industry Regulatory Authority numbers do not distinguish between retail and institutional.
In recent years, armchair traders have taken advantage of the democratization of financial markets—access to margin debt, options trading, zero-dollar commissions, and even initial public offerings—through various platforms and brokerages. But the Wall Street titans are also leveraging.
In its Financial Stability Report, the Federal Reserve highlighted that, for example, hedge funds have registered almost 14 percent growth in leverage.
“The overall level of vulnerability due to financial-sector leverage was notable,” the Fed stated in the November 2025 report.
“In the first quarter of 2025, hedge fund leverage was as high as it has been since comprehensive data have been collected.
“Hedge funds’ use of leverage increased across a range of trading strategies supporting large positions in Treasury securities, interest-rate derivatives, and equities.”
‘Systemic Risk’
Margin debt, options, and leveraged ETFs can exacerbate swings in either direction. When troubles arise and momentum breaks, plummeting prices diminish collateral, and leveraged positions metastasize into forced selling.
Under current market conditions, these trading tactics are paying off for many investors.
The blue-chip Dow Jones Industrial Average, the broad-market S&P 500, and the tech-heavy Nasdaq composite index have rallied by 20 percent over the past year to record levels.
But although Wall Street is immersed in a record bull run, risks have popped up on occasion, whether in the form of the war in Iran or private credit stresses.
Last week, South Korea’s benchmark Kospi suffered a sharp sell-off, driven by traders rotating out of the crowded tech trade. The 10 percent decline, the biggest single-session drop since March, triggered multiple circuit breakers and halted trading.
This bled into global tech stocks, igniting fears of systemic risks facing the U.S. market.
“We also just saw what we would essentially call systematic risk this week as markets overseas got slammed, and there has been too crowded a trade and too much leverage in the system,” Ken Mahoney, CEO at Mahoney Asset Management, said in a note emailed to The Epoch Times.
Stocks keep recovering following days of massive losses as retail investors buy the dip.
But investors are signaling consternation about the borrowing frenzy among AI hyperscalers—Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle—that are “pouring so much of their free cash flow into data center projects.”
“The market clearly does not love this path that they are on,” Mahoney said.
Based on what has occurred over the past 30 years, the concern that margin borrowing has outpaced market performance might be warranted.
In early 2000, for example, U.S. margin debt surpassed $284 billion, a record at the time. Within weeks, the dot‑com bubble burst and markets unraveled.
Ahead of the 2008 to 2009 financial crisis, margin borrowing swelled again, topping $416 billion. What followed was one of the most violent market collapses in modern history.
Despite record margin debt, investors are still resting on a massive cash stockpile.
At the end of the first quarter, nearly $8.3 trillion was sitting on the sidelines, according to the data from the U.S. central bank.
