Heres what it means to be over leveraged:
When you or I go to a broker to invest in the stock market (DOW-NASDAQ-S&P-NIKKE ETC) they are happy to see us
They will allow us to trade stocks for a small fee
As we trade stocks from myself to your self and to others we win some we loose some depending where you want to be long or short term
now the broker may say hey you made a boat load of money wouldn't you like to make even more ;) wink absolutely of course what we have is a margin which means it's a loan with very low interest depending on what you buy we may put a restriction on the amount of funds we will provide based on your risk is that a deal
Deal some require 100% backing some require70-50% backing of your cash account or as low as 30% which then allows you to leverage your buying power that much over your original investment(as long as prices go up ;) wink
Now when prices and stocks go down there must be the backing available for the investment you chose if the stock in this case goes down too much below your 100%-30% range then there is a margin call which means you deposit funds into your account or sell your position.
The DOW NASDAQ AND S&P 500 ARE ALL OVER LEVERAGED at this time as the interest rates rise it becomes more expensive to take a loan out then fewer people borrow money if there are less people borrowing money in the market to make it rise (it has peaked) at this peak you determine if you are satisfied with 25% gains compared to the 25-90% if not 150% gain from the very bottom
When too many people are not satisfied with large gains the ask questions and wonder if there is something else to invest in with better potential they leave the peak as they were doing last friday (except for gold)
and we have the beginning stages of a self off now when more people sell and the stock becomes worth less and less so then more money currency is needed to sustain the leveraged market if there is no other outside money currency coming into the market hence then you will get those margin calls to sell your stock position if it looses too much value people will be forced to sell their stock/position and we have a waterfall effecting the market people will then have to sell because they were over leveraged in the first place with money/currency they never ever had 3 things stop the free fall stop selling, don't leverage or pump more money into the market.
The broker and brokerage firm make a killing into and on the way up to the top and down out of the market to the bottom for every trade :)
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