Trace how leverage turns a fall into forced selling.
Fall in the shares−10%
Fall in your own money−50%
Same fall. Five times the damage, because four fifths of the position was borrowed.
You buy £10,000 of shares using £2,000 of your own money and £8,000 borrowed. The shares fall 10%. What happened to your money?
Yes.The debt does not move. The whole fall is taken by the small piece that was yours, which is what borrowing does in both directions.
Not quite.Only if the whole £10,000 were yours. Your share of the position was a fifth of it.
Not quite.The paper loss is not realised — but the lender is watching the same number, which is the next step.
Borrowing multiplies the move in both directions. The lender's claim is fixed, so every gain and every loss lands on the small piece that is yours.
Put in order how a fall becomes forced selling.
Tap them in order — first to last.
Prices fall→The lender wants more→Forced to sell→Prices fall further
A loop, not a chain. It runs until the borrowing is gone.Yes.The last step feeds the first. That loop is why a market can fall much further than the news that started it, and why the sharpest falls happen when nothing new is being announced.
The same 10% fall, with different amounts borrowed.
NoneHalf80%95%
Fall in the shares−10%
Fall in your own money−10%
NoneYou are down 10%. Uncomfortable, and nobody is calling you.
Fall in the shares−10%
Fall in your own money−20%
HalfDown 20%. Still within most limits.
Fall in the shares−10%
Fall in your own money−50%
80%Down 50%. The lender is now the largest stakeholder in your decision.
Fall in the shares−10%
Fall in your own money−100%
95%Wiped out. A routine 10% move has ended the position entirely.
The market did exactly the same thing in every frame. What changed?
Yes.Borrowing does not change the odds of a fall. It changes how long you are allowed to be wrong — and past a point, a normal week is fatal.
Not quite.Identical shares, identical fall. The risk that changed was the borrower's, not the company's.
Not quite.The market did the same thing in all four frames — down 10%. Only the borrowing behind the position changed.
Move the control to see what changes.
Which of these are signs that borrowed money is in a market, and which are not?
A fall that accelerates without any new news.
Selling concentrated in the last hour before a deadline.
Prices falling on a bad announcement.
Unrelated assets being sold at the same time.
Higher trading volume on a busy news day.
Yes.The signature of forced selling is selling that makes no sense as an opinion — good assets sold beside bad ones, faster as the price falls, and against the clock.
You put up £2,000 and borrow £8,000. How far must the shares fall, in percent, before your stake is entirely gone?
%
Yes.£2,000 is a fifth of £10,000, so a fifth is all the fall you can absorb. In practice the lender acts well before that, which is why the selling starts earlier than the arithmetic suggests.
Why do falls tend to be faster and sharper than rises?
Yes.There is no mechanism that forces anyone to buy by Friday. That asymmetry — compulsory selling, optional buying — is a large part of why charts fall in cliffs and climb in slopes.
Not quite.Perhaps, and it is unmeasurable. The mechanical answer explains the timing, the concentration and the clustering without needing it.
Not quite.Some does. Plenty of crashes happen on days with no news at all, which is the case this explains.
Lesson complete
Borrowed money decides how long you are allowed to be wrong.