Can adding leverage really make you get rich quick in stock trading? I’ve laid out both the risks and opportunities.

Have you ever considered borrowing money to invest in stocks? Especially when you see others making a fortune through leveraged trading, that itchy feeling is universal. But I must be honest: Borrowing money to buy stocks seems to promise high risk and high return, but in reality, most people get caught in scams and end up losing everything. Today, let’s talk about this topic.

Why does everyone want to borrow money to trade stocks?

Honestly, it boils down to two words: Leverage. You can use 100,000 yuan to borrow and turn it into 200,000, 300,000, or even more, earning double when the market goes up, but losing everything when it goes down…

The motivations for borrowing money to trade stocks vary:

Some see an excellent investment opportunity and lack sufficient funds, so they borrow; others aim to hedge risks, such as short selling via margin; some just want to quickly accumulate wealth, treating leverage as a secret to getting rich. But there’s a harsh reality: Borrowed money isn’t free—you have to pay interest. This cost directly eats into your profits, and if your trading skills are average, the interest alone can cause losses.

The apparent returns vs hidden risks of borrowing money to trade stocks

Magnified gains that look appealing

If you borrow at an annual interest rate of 5% to buy a stock that rises 20% in a year, your actual profit is 15% (20% - 5%). Sounds good. Plus, the freed-up capital can be invested elsewhere, improving capital efficiency.

But this is only true if your judgment is correct.

The real danger lies on the other side of the double-edged sword

When stocks fall, leverage will ruthlessly magnify your losses. The scariest part is: when your margin ratio drops below the liquidation threshold, the broker will forcibly sell your stocks. You have no reaction time, and no chance to cut losses—what might have been a 20% loss can turn into 50% after forced liquidation.

And don’t forget the psychological toll. Watching borrowed money fluctuate in the stock market creates immense pressure that ordinary investments can’t match. Many people, under this stress, make irrational decisions, ending up losing more and more.

Several ways to leverage and their hidden dangers

1. Margin trading — the most common but also the most dangerous

Borrow money from a broker (margin financing) to buy stocks, or borrow stocks to short sell (securities lending). The annual interest rate is roughly 5%-8%.

It seems low, but the entry threshold isn’t easy: you need to have an account for over 6 months, assets exceeding 500,000 yuan, and some trading experience. The problem is, once the market moves against you, you simply can’t withstand it. Short selling risks are especially high—since stocks can theoretically rise infinitely, your losses are unlimited. Someone shorted a stock, and when a sudden positive news hit and the stock hit the daily limit, they went bankrupt instantly.

2. Bank loans — extremely costly

Borrow money from a bank to invest in stocks. The annual interest rate ranges from 8% to 15%, which is quite expensive. Plus, banks have strict credit checks; poor credit records mean outright rejection.

The key point: If your stock investments lose money, you still have to repay the loan on time. This creates cash flow pressure—if the stock market is sluggish and your income sources are limited, you could fall into debt trouble.

3. Stock pledge — sounds stable but also risky

Use your own stocks as collateral to the broker or bank to get cash for investment. The annual interest rate is 6%-10%, between margin trading and bank loans.

This method suits those who already hold some quality stocks and don’t plan to sell in the short term. But the risk is clear: If the pledged stocks plummet, you face margin calls or forced liquidation. You intended to borrow money for other opportunities but end up trapped.

4. Margin trading — a game for professionals

Trade derivatives like futures and CFDs, requiring only a margin deposit to open positions. The annual interest rate is 5%-10%. It offers the highest flexibility but also demands the best operational skills.

This approach is only suitable for experienced investors. During volatile markets, it’s easy to trigger margin calls or forced liquidation. Those who have experienced a margin call know the despair—losing all principal overnight.

Four major risks of borrowing to trade stocks that you must beware of

First, interest costs eat into returns

If the annual interest rate is 5%, your investment return must exceed 5% to make a profit. Sounds simple, but the stock market is so volatile—can you guarantee earning over 5% every year? Very unlikely. Most people can’t.

Second, psychological pressure leads to mistakes

Money isn’t your own, so the psychological burden is heavy. It’s easy to panic during downturns, chase highs, sell low, and end up losing more. I’ve seen many people ruin their positions because their mental state collapsed—they could have held on but chose to ruin themselves.

Third, the nightmare of forced liquidation

When your margin ratio falls below the liquidation line, the broker will sell your stocks without negotiation. This passive surrender is extremely painful and often results in huge losses.

Fourth, cash flow risks

In case of emergencies—job loss, illness, urgent family matters—you need large sums of cash, but your funds are tied up in stocks, and you still have to repay debts. At that point, there’s really no way out.

How to use leverage more safely?

One, calculate interest costs carefully

Before investing, figure out: how much do I need to earn to cover interest? If the rate is 5%, then your target return should be at least 8%-10% to be profitable. Only then is the trade worthwhile.

Two, control leverage ratio

Generally, it’s recommended that debt not exceed 50% of your own funds. In other words, don’t borrow more than half of your capital. This way, even in extreme market conditions, you won’t be wiped out immediately. Some people greedily leverage up to 200% or 300%, which is gambling, not investing.

Three, set strict stop-losses

This is vital for survival. Before buying, decide: at what point will I sell if the price drops? Then stick to it—don’t be soft. Many losses happen because people don’t set stop-losses or fail to execute them.

Four, keep emergency funds

After borrowing to trade, always reserve some cash for emergencies. Don’t put all your funds into stocks; this gives you room to maneuver.

Five, overcome emotional trading

This is the hardest but most crucial point. Make a solid investment plan and stick to it. Don’t make frequent trades based on news or emotions. Emotional trading is often the main cause of doubled losses.

Final words

Borrowing money to trade stocks isn’t forbidden, but you must understand: It’s a double-edged sword. Used well, it can accelerate wealth growth; used poorly, it can lead to rapid bankruptcy. Most retail investors lack not courage, but risk awareness and self-discipline.

If you’re still hesitating about leveraging, my advice is: first, practice with your own funds for at least two years, and only consider leverage after achieving consistent profits. Sometimes, staying alive is more important than making money.