Margin Assisted Suicide; Changsha Man Jumps After Losing Everything

China's bull market is going strong, but massive leverage has already led to tragedy.

Mr. Hou, a 32-year old man from Changsha, levered up to 4 times his capital and put it all in a single stock. Shares were limit down for two days straight and his 1,700,000 yuan in capital was wiped out. After several days of fighting with his wife and dealing with the psychological pain, he leapt from his 22nd floor apartment. Besides his wife, he left behind a 6-year old child.

QQ: 长沙股民170万四倍融资全仓一股 两天赔光跳楼

Not as a result of this incident, but in awareness that this insane leverage exists, the government is now clamping down on margin.

China market regulator seeks to cap margin trading, short selling

China's securities regulator, seeking to contain risks in the country's highly-leveraged stock market, on Friday released draft rules that cap a brokerage's margin trading and short selling business at four times its net capital. At present, there is no ceiling on how much margin financing a Chinese brokerage can extend.

...Margin financing - money investors borrow from brokerages to buy stocks - has grown five-fold in China over the past 12 months, exceeding 2 trillion yuan ($322.26 billion).

SUGGESTED CAP

The suggested cap points to a ceiling of 2.7 trillion yuan on margin financing and short selling, based on the industry's total net capital of 679.2 billion yuan by the end of last year.

If you think there's only 2 trillion yuan of leverage in the market already, you are very wrong. Here's a screenshot from the news report on the Changsha story (follow the link to see video).

This sign says:

Give You Lots More Stock Trading Capital
Gives You Lots More Profit Opportunity

You Trade Stocks, I Give You Money, Profit Is Yours

Also Provide Capital For Overseas Futures and H-Shares

Expand Your Capital 1 to 10 Times; Professional Service
A quick search on Google and Baidu shows there are many firms advertising loans for stock traders.