Today’s News
Margin trading in Japan’s stock market experienced a significant decline last week as investors were forced to sell off stocks during the Nikkei index’s sharpest drop in nearly four decades.
Image Source: Reuters
Margin trading, which involves borrowing funds from brokerages to amplify stock market bets, is particularly popular among Japanese retail investors, accounting for about 70% of retail trading value, according to data from the Japan Exchange Group, which operates the Tokyo Stock Exchange.
The value of shares bought on margin decreased by 907 billion yen (USD 6.15 billion), falling to 4 trillion yen in the week ending August 9, down from the previous week’s 4.87 trillion yen. This follows a record high of 4.98 trillion yen in the week of July 26.
On August 5, the Nikkei plunged 12.4%—its largest single-day drop since the 1987 Black Monday crash—only to rebound by 10% the following day. From its July peak of over 42,000, the index fell as much as 27% by August 5, but it has since recovered, trading around 36,721 as of early Thursday.
The sharp reduction in margin trading suggests that leveraged retail traders, who account for approximately 20% of Japan’s brokerage trading value, suffered significant losses during the market downturn and may be hesitant to re-enter the market soon.
Margin trading can amplify trading volumes but also increases losses when markets decline, as investors are often forced to sell off shares to meet margin calls.
Strategists noted that last Monday’s steep decline in the Nikkei was worsened by these margin calls.
(USD 1 = 147.5000 yen)
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