Houston — On a late night in May 2021, 29-year-old engineering consultant Hy Luu was at home researching how to raise more funds to buy Tesla stocks.

It was at that time that he discovered margin trading: borrowing money from brokers to buy stocks and other securities, using his existing investments as collateral. Borrowing allowed him to gain greater purchasing power, with the intention of repaying the money once stock prices rose. The main risk involved was margin call, which meant that if the value of his account declined, he would be required to deposit additional funds into it.

Luu thinks this sounds “too good to be true.”

Luu and his mother, Kim Nguyen, live in a three-bedroom, two-bathroom house in Houston. Since his mother used to be an accountant and happened to be awake that night, he decided to listen to her opinion. The 66-year-old Nguyen found this quite interesting.

This provided him with what he needed, reassurance. Not long after, he began his first investment in Tesla using margin. About a year later, his margin debt had accumulated to over $100,000.

“I’m really gone mad,” he said in an interview with CNBC. “The stock price kept rising, so I thought to myself, ‘I can’t possibly lose money.’”

After five years of margin trading – during which there was a period in 2022 when he feared that a further decline in Tesla's price would trigger a margin call – Luu is currently working hard to repay the largest margin balance he has ever had. In June of this year, he exercised $165,000 of his five Tesla call options and purchased 500 shares at $330 per share. After deducting the cash in his account, this increased his debt to over $156,000.

That month, Tesla's stock price rose from below $370 per share to above $430 per share.

Including Tesla investments, his company stock, and his 401(k) account, minus margin debts and other liabilities he has accumulated such as car loans and student loans, Luu's net worth has soared from negative seven years ago to over $800,000.

"I'm already very close to becoming a millionaire," said this investor. He also emphasized, "What I do is very risky. I don't advise anyone to do it."

However, Luu has become part of a growing trend in the market.

"Gambling with asterisks"

Retail investors like Luu are borrowing more and more money to invest. In the second quarter, the size of the margin account books reached a record $21.6 billion, a year-on-year increase of 127%, and a 332% increase from $5 billion in the second quarter of 2024. To use margins on this platform, eligible user accounts must have a value of at least $2,000.

Citizens, the head of fintech research, Devin Ryan said: "We have always been very targeted in attracting those customers who actively use margin, because they are the most active traders."

Brokers can profit by charging interest on margin loans, and customers who trade frequently can also generate more transaction-related income.

Ryan said, "If you look at the various discounts that Robinhood has offered in the market over the past few years, it has always been targeted at these customers. There have not only been obvious rewards for account transfers, but also very low margin rates and high cash yields."

Of course, other parts of the Robinhood business are also growing, including retirement assets, which have nearly quadrupled in the past two years.

Ryan believes that another factor contributing to the increase in margin investments is the easier access to such services through smartphones.

He said, "The investment threshold is very low, and everything is within reach. Moreover, the mobile experience is very smooth and not cumbersome. I think that plays a big role in this."

A spokesperson for Robinhood told CNBC that the company's products are designed to attract a wide range of customers, stating, "We believe it is inaccurate to describe the account transfer promotion as specifically targeting 'active traders who trade on margin or may trade on margin'." The company stated that it attempts to "meet where users are" and "rejects any suggestion that the company is encouraging high-risk trading."

The margin debt of Robinhood is not the only record-breaking figure. According to data from the Financial Industry Regulatory Authority, in June, the total margin debt in the market reached a historic high of approximately $1.5 trillion, which includes both institutional investors such as hedge funds and retail investors.

However, not all of these debts come from new borrowing decisions. For example, when stock prices rise, investors may need to cover a short position valued at market value.

Nevertheless, SGH Wealth Management, the Chief Investment Officer, and Sam Huszczo believe that the bull market, which has set multiple records this year, is changing investors' mentality, and margin debt is one sign of this change.

"That's greed," said the founder, adding that this phenomenon "is not present everywhere in the market," but "it is definitely beginning to seep into some corners."

"Margin requirements? That's just the tip of the iceberg we can see," he continued, "The fear of missing out is actually a manifestation of jealousy in a brokerage account."

Huszczo believes that the market is actually "much healthier" than many people imagine. However, he also acknowledges that the rise in margin debts and the popularity of high-risk assets such as leverage ETF can introduce more vulnerabilities into the system.

"People need to distinguish between what is reasonable momentum growth investment and what is reckless chasing of rising prices," said Huszczo.

He also agrees with the general view of many financial advisors: an investor's portfolio should not be overly concentrated on one stock, nor even on one sector.

But since buying his first share of Tesla at the end of 2019, Luu has been focusing on this company ever since. Earlier on, he had just started his current job – at that time, he said he knew nothing about investing. It wasn't until a few months later, when a colleague asked him to download Robinhood, that he began to research stocks and other assets.

“I started making money, and soon I realized, ‘Now that I have money, what should I do with it?’” he said. “I began investing in index funds and even cryptocurrencies. Then I did some calculations. Looking at the returns, I thought to myself, ‘These returns are too slow. I’ll never be able to retire or achieve financial independence unless I wait until around 65.’”

At that time, he didn't know that a decision he made that summer would become a guiding light for him.

"At that time, I was faced with a choice between a Honda Civic and a Tesla Model. My friend helped me schedule a test drive for a Model," said Luu. "My plan was just to take a test drive. I had no intention of buying anything or making any reservations. To make a long story short, after the test drive, I placed a deposit on the same day, and two weeks later, I picked up the car."

After seeing the value that this car brings to his life, Luu said that he could imagine a future where electric vehicles and autonomous cars become commonplace. It is because of his strong belief in this future that he considers Tesla to be the “easiest” investment he has ever made, and over the past seven years, he has generally held onto these stocks throughout the investment process.

However, when Tesla's stock price began to fall in 2022, his strategy became somewhat difficult, putting him in a vulnerable position where he could face a notice of margin call. 2022 was the worst year for Tesla on record, with the stock closing at $123.18 for the whole year, a decrease of about 65% from the beginning of the year.

In order to raise more funds, Luu made a significant financial decision with his mother's consent.

"I refinanced my house and got an additional $30,000 in funds, which I used to pay off my mortgage deposit debt," he said.

Luu is aware of the risks associated with margin trading. Since he has been investing in Tesla using margin for most of the past seven years, he refers to his investment strategy as "gambling with asterisks."

For now, it seems that this strategy is effective. Over the past five years, Tesla's stock price has risen by more than 43%, to $375. However, this stock, which is highly volatile, is still about 25% lower than its historical high of nearly $499.

“It’s easy to think of it as gambling, because obviously you’re betting all your money on one stock, and that in itself carries risk,” he said. “But the reason I say there are subtle differences is that it depends on the investment mindset, financial discipline, and the time span involved.”

Over a period of "many decades," with a mindset that he described as "very calm and composed," and a "highly positive" belief in Tesla, Luu felt that he "had absolutely no risk of panic selling," even during market crashes.

Nevertheless, this situation also reveals another risk: missing the opportunity to buy into a stock when it is undervalued. When Luu is scrambling to raise funds to meet margin requirements, his flexibility to purchase more Tesla stocks at low prices is diminished.

Affect stocks

After such a high level of margin requirements, the stock market often enters a risk-aversion phase.

Data from Fundstrat Global Advisors shows that since 1960, whenever the monthly margin debt growth rate exceeded 45% year-on-year, the stock market has declined in five out of six instances. In June, when margin debt reached a record high with a year-on-year increase of 49%, the S&P 500 index still rose by more than 13% in 2026. If this historical pattern continues, a turn downward by the end of the year would represent a significant change, which would be considered very unusual in the stock market.

The institution also found that after the margin debt increased by more than 40% year-on-year, the median performance of the S&P 500 index over the next 12 months is expected to be worse than that after just one month. Specifically, the median return for the S&P 500 index over the next 12 months is expected to be a decline of 4.2%, while the median return for the next one month is expected to be a decline of 2.2%.

Essentially, the faster the margin debt rises, the worse the impact on the S&P 500's returns over the next 12 months.

The economist from Fundstrat, Hardika Singh, stated that margin debt may not necessarily lead to a decline in the S&P 500, but if the leverage level in the market is high, it could exacerbate the existing downward trend.

“Earnings bring more earnings, but eventually it turns into losses bringing more losses, and that’s where the trouble lies,” said Singh. “You’ll experience these losses, which accumulate over time, and then stocks are sold off. Everyone starts to close their positions, and in the end, it becomes a major disaster that’s hard to stop, causing significant volatility in the market.”

However, Singh also understands why investors like Luu would tend to adopt such high-risk strategies. She says, "No one gets rich by diversifying their investments."

A new hobby

Luu says that he has been a "fan" since he was a child, and investing has become one of his many hobbies, along with rock climbing and playing the guitar. Investing has become such a hobby that he even created his own social media account to document his investment journey.

Even if the financial goals are ultimately achieved, Luu 'will never stop investing,' he said. On the contrary, he indicated that he 'might start investing in SpaceX.'

It's not just Luu who treats trading as a hobby.

The Singh from Fundstrat explains that American traders, especially young traders, feel that they must take on greater risks in order to stand out. She says that this is also part of a broader trend known as "financial nihilism": young investors turning to more unstable investment tools in the face of a tough job market and high inflation.

"This can well explain why individual investors, especially retail investors, continue to be attracted by margin debts," added this economic strategist. "It's like a drug; I think that in such an economic environment, people just can't stop using it."

59-year-old retail investor Kevin Davis believes that the risks of leveraged trading outweigh the rewards. Davis made a living from rap in the 1980s and 1990s, and later became a stock broker.

"That's gambling. You're borrowing money that you don't have, so if the trend turns around, your money is now on a countdown, and that countdown is ticking away," said this person with an investment technology platform, Davis. "The market won't save you. It never does."

“Don’t play the margin game,” warns this person who resides in Florida.

But Luu's mother has full confidence in him.

The reason Luu became an engineering consultant is that his father, who passed away from lung cancer in 2012, introduced him to computers. His mother said that among her two sons, Luu not only looks most like his father but also has a personality very similar to his.

Thinking about how her late husband might have viewed Luu's investment pursuits, Nguyen paused for a moment, a faint smile on her face.

Then she said, "He will say that he is proud of him."

– CNBC's Charlotte Morabito and Deena Zaidi contributed to this report.