My Margin / Leverage Story: A Case Study in What Not to Do

Investing Strategies
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I want to share a personal experience with margin trading / leverage, because I believe many retail investors underestimate the risks involved.

After five years of investing in the stock market, I had built a reasonably solid long-term portfolio. Naturally, I started thinking about how to accelerate my returns.

Around that time last year in April, my broker called and told me that since I had a good portfolio, I could leverage it to buy 2x, 3x or even 4x more shares using margin funding.

Without really thinking through the risks, I went ahead and bought shares worth around ₹50 lakhs on margin.

Looking back, it was reckless.

  • No proper allocation

  • No stop losses

  • No defined risk management

I was simply assuming that markets would eventually go up.

Then things started going wrong.

First, tariff-related news hit the market, which caused a sudden correction. Instead of exiting, I held on and kept paying 14.4% annual interest on the leveraged capital.

Eventually the market started recovering, and I thought I would finally get out of this mess.

But then fresh geopolitical tensions started escalating, the ongoing USA–Israel conflict in West Asia and markets reacted again.

Yesterday, because of the fall in prices, my broker’s RMS system forcibly sold one of my margin positions, which created a margin shortfall of ₹2.5 lakhs.

To cover that shortfall, I had to sell one of the best-performing stocks from my long-term portfolio; something I had patiently held for years.

That was the moment the reality of leverage truly hit me.

My attempt to accelerate returns using leverage ended up damaging capital that took me years to build.

And the worst part is the problem isn’t even fully over yet. I still have positions on e-margin for which I’m paying interest, and I’m waiting for the right opportunity to unwind them gradually.

What This Experience Taught Me

Leverage is dangerous because it magnifies both profits and mistakes.

Most people only think about the best-case scenario:

“If the stock goes up 20%, my returns will multiply.”

But very few think about the worst-case scenario:

  • Sudden geopolitical events

  • Market corrections

  • Forced liquidations by RMS

  • Continuous interest costs eating into capital

When leverage backfires, it doesn’t just hurt financially : it destroys confidence and mental peace.

My Advice to Anyone Considering Margin Trading

If you are thinking of using leverage:

  1. Use it extremely cautiously

  2. Always plan for the worst-case scenario

  3. Never leverage your entire portfolio

  4. Have strict risk management

  5. Remember that interest keeps running even when markets move sideways

Sometimes the boring path of unleveraged investing and compounding is far safer than trying to speed things up.

Unfortunately, I learned this lesson the hard way.

If this post helps even one investor avoid making the same mistake, it is worth sharing.

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Good thread but my humble suggestion is that at the earliest, come out of all margin as the war and the fallout from it is only going to get worse

The stock market first rehearses which it’s doing now, then it goes up and then the actual fall comes

It’s just a suggestion however

I wish you luck and remember in this game survival is most important because you can then live to fight another day

5 Likes
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Can we even make sizable portfolio without leverage? Not suggesting the leverage is good. But whole systems are leveraged. Like banks and Real estate. Is anyone do you who made without leverage big.

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I feel the market is already near bottom and in the oversold territory. I made a mistake by buying recklessly and allowing it to ruin my capital through losses and interest payments.

I don’t wish to make another mistake of not buying right now at such low and attractive valuations and repent later when opportunity was there. I have made mistakes and learnt from them. But, I won’t lose an opportunity to buy during a war because the recovery is going to be quick.

I’m not revenge trading using leverage but making the right use of it during the right time.

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Yes and No.

If you have a decent portfolio (25L+) to start with, you can grow it without leverage. But, if the portfolio is too small, you need leverage but more importantly the knowledge and underdtanding of risks involved with it. If you have spent good numbers of years understanding how the market and share price behaves, you can take help of leverage but try not to go beyond 3X leverage unless you consistently make profits from it.

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Thank you for sharing. I understand we should use leverage properly and to use where we see there is strength and we can get profits after covering the costs.

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I see that this post is 7 days old, and you may be wondering today if you made some investments at a higher price, given how the market has moved in the last one week.

Apart from the margin lesson you shared, another learning is that no one knows what the bottom is. So keep allocating capital in small amounts, and there is no need to rush.

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The fall due to war has not even started yet

The economy was struggling

Imagine a weighing scale. All markets on one side and injected cash on another side.

Everything is competing for that injected cash. When there is more of it, everyone gets a share. When there is less of it, everyone has to give

Why would governments inject cash. Because it causes markets to absorb some and use for expansions, consumption etc generating employment

But it’s a pyramid scheme

You need more and more of it

Share markets of economies that don’t accept this cash usually has very attractive pe but no one buys it

What the general public sees is war as the cause. Ofcourse this war has contributed because of higher fuel costs but Ukraine war also had that potential. And like the Ukraine war, in this war as well measures are in place like release of reserves and allowing Russia to sell

But war is just a news item that news papers with no economic background understand and can report. The general public buys into it

To know where the market is heading one needs to look at liquidity injection from fed & china who do a lot of these things to stimulate growth. As their consumers benefit the rest of the systems benefit

If you see the interest rate cut at the last meeting J Powel said they are injecting some billions because with it even the fed cannot bring rates down. Rates move independently of fed decisions but because they can buy debts, they just keep bidding lower rates

Like reliance did with fabrics, they kept selling at low cost which become the markets cost where others could not compete. But it’s not the long term cost.

If you know when these are injected and when the limits are reached you can leverage highly when the injection is in full swing

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I think we can and should mostly avoid leverage. I recall a discussion here, I forget in which thread but it was about leverage, that another member had argued that leverage is good in a bull market. I was suggesting that it is good only for a bear market. His argument was that in a bear market, you don’t know where the bottom is, and you may be caught in a whirlpool.
On the other hand, the bull markets take one’s breath away, and then bring us down back to the earth with a thud.
I have taken a leverage only two days back. As the luck was on my side, the market is rising. The result is, in the last two days itself I have kept adding to the shares I have bought. Everything is rosy. But do we know till when?
If one has to buy in a bear market on leverage, the bear market has now run for several months. So, timing or luck may be important.
I believe a portfolio may be built without leverage too. At least in that case, I can sit easy. Several of my shares have been down 12-15%. If they had been bought on leverage, the system would have liquidated them automatically. That will go contrary to the notion of buying cheap.
I am trying leverage practically for the first time (earlier I had on the advice of my relationship manager, bought 50 HDFC, I took delivery within 2-3 days, I was so nervous about it), my hope is I will try for a long term hoping for a recovery, and try to take delivery of as many as possible in the meanwhile. I will be walking on coals all the time.
My fear is, I am getting greedy, wanting to make up for the losses suffered recently.
I look forward to your and other people’s views.

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Your thesis of taking leverage in a bear market is absolutely bang on!
Pretty much everything has been priced in right now: AI, War, Tariffs, FIIs selling etc

It’s true nobody can predict the bottom but share prices won’t fall 50% from here like it did in the last several months simply because share prices follow earnings in the long term and the earnings have been on a rise for the past couple of quarters.

Leverage in a bull market is a trap because it can vanish in an instant and you end up suffering losses + pay interest if you decide to hold on to them like I did.

@meekinvestor please don’t be fearful. You’re investing in markets is a solid proof that you’re not the kind who is happy with 7% stable returns on an FD. Leverage when fully understood and used properly can amplify returns and wipe out the losses.

Be very picky with what you choose right now but keep allocation in mind. Never cross 5% irrespective of how appealing the idea may be.

If I was in your place, I wouldn’t keep any SL and would buy more after every 10% fall. The next bull run is around the corner and this time it will be the time of small and midcaps to lead the rally.

Wishing you all the best. I’m glad you took that plunge!

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I don’t keep stop-loss. That defeats the principle of buying cheap, and not being fearful.

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Do you have FDs? In case, there is a fall and your leveraged positions go into loss, and you have conviction on your stocks, so you don’t want to sell, so adding funds is the only way.

Another point is to calculate the interest on the leverage per day. A fall does not happen, but prices don’t move, and as such, there could be a long wait to see the profits, at least for a few weeks, if not few months. If you have any price targets in mind, it is always better to have the mathematical clarity of how much we are paying until we see the profits.

In my opinion, leverage will not do too much harm if we have funds. If we have funds, we don’t get penalized on two fronts; liquidation and interest, we can add funds to the extent necessary and only have to pay the interest which happens with any kind of loan. And, we would not have bought anything without analysis of the business, so buying something and prices falling even to the extent of 20 or 30% is not new to us, we have seen this many times before.

Also, check charts to have some idea of price movement, price may already have been at some low, so the chance of price falling further may not happen, or, from fundamental perspective a stock is a value buy, but from technical perspective, price can still go down.

I take some small leveraged positions, with funds in place, experimenting. So, do take my views with a pinch of salt.

2 Likes
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This really is my blind spot. I may have to do some basic study of technicals.

1 Like