Rising use of borrowed money raises risk of sharper market swings

Retail investors and quantitative funds are using more borrowed money while trading for shorter periods, increasing the risk of forced selling and sharp market declines, strategists said. Leverage has eased in some areas since an artificial-intelligence stock selloff in July, but remains elevated among retail and hedge-fund investors.

Leveraged bets contributed to the near-collapse of a hedge fund and margin calls for more than 1.2 million South Korean trading accounts after that country’s stock market fell in July. South Korea responded with tighter access to leveraged exchange-traded funds and higher cash-margin requirements. Strategists said similar trading patterns could make volatility more frequent in U.S. markets.

Read the full story at morningstar.com.