Losing money on the margin

Daniel Ladley, Guanqing Liu, James Rockey*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Margin trading is popular with retail investors around the world. To limit the scale of these investors’ potential losses, regulators impose a system of collateral requirements and margin calls. We show in this paper, however, that the collateral requirement imposed by margin calls results in negative expected returns for these traders whilst also inducing positive skew in the returns distribution. Investments in assets with symmetric returns, when traded on margin, instead offer limited losses and a small chance of a large gain, much like lottery stocks and other gambles. We demonstrate this theoretically and then show empirically, using a unique database of account data from a Chinese retail brokerage, that the realized losses of margin traders are often substantial. This leads us to question whether current regulation is appropriate.

Original languageEnglish
Pages (from-to)107-136
Number of pages30
JournalJournal of Economic Behavior and Organization
Publication statusPublished - Apr 2020

Bibliographical note

Publisher Copyright:
© 2020 Elsevier B.V.

Copyright 2020 Elsevier B.V., All rights reserved.


  • Financial regulation
  • Margin requirement
  • Margin trading
  • Retail investors

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management


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