Skip to Content

Stock Selloff Due to OMICRON Exposes On Margin Investors

December 1, 2021 Blog

The Black Friday stock rout that resulted in a 900 point drop in the Dow Jones Industrial Average has exposed investors on margin. Investors with large margin balances likely received “margin calls” as their stocks plummeted quickly and steeply. While margin borrowing in a rising market tends to increase returns, margin borrowing exposes portfolios in a rapidly falling market and can result in sudden and dramatic losses. In fact, due to the uncertainty surrounding the particulars of the Omicron variant, more volatility and potential losses can be expected in the coming weeks.

Margin Borrowing Was Up in October, But Investor Cash Holdings Fell

According to a recent Wall Street Journal article, “margin borrowings in October were up 42% from a year earlier to $935.9 billion according to FINRA statistics.”  The Journal also reported that cash holdings among individual investors fell to 46% of margin balances, the lowest reading since 1997.  This data indicates that there are likely to be substantial margin calls for individual investors that could fuel forced selling and result in lower stock prices overall. In addition to margin borrowing, many investors who have large option positions could also see substantial losses.

Contact Stock Lawyer Jake Zamansky to Discuss Your Legal Options

Other at-risk investors include younger borrowers who trade “meme” stocks on margin at firms like Robinhood. Think twice before deploying margin. Markets move quickly and can wipe out years of gains in a very short period of time. If you have concerns about how OMICRON is affecting your holdings, contact stock lawyer Jake Zamansky today.