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According to some random person on the subreddit who probably isn't a good source, the SEC limit for leverage for normal people is 2:1.
by sb057 7y ago
According to some random person on the subreddit who probably isn't a good source, the SEC limit for leverage for normal people is 2:1.
- dmurray 7y ago2:1 is correct. Or 1:1, depending on your definition of "normal people". The relevant rule is called Reg T and it's not a limit set by the SEC, but by the Federal Reserve.
- hinkley 7y agoI was taught that some aspects of that rule go back to the stock market crash of ‘29. There were few limits on leverage then, either.
- hermitdev 7y agoThis correct. My knowledge comes from +15 years working in finance. I dont know the individual limit on leverage, bit its fairly low. Institutionally is another story. I was working at a fairly large hedge fund through the 2008 collapse that saw a huge loss due to a 40:1 leverage. Nearly bankrupted the firm. Through September and October, the lot of us working there thought we were doomed and were awaiting the layoffs that never came. As a result, the firm put in a self imposed leverage limit of 10:1 amd divested itself of less liquid assets like bank loans. We held around $20B USD in bank debt that was toxic and couldnt find a market for. No bailout, but something like 60% of $24B USD evaporated in a month. It was all made back in about 18-24 months, though. Crazy times...
- lostlogin 7y agoIs your full story written up somewhere?