In Bull market, the value of shares in holding is on the higher side. So to get the same amount, less shares are required in bull market compared to bear market.
The momentum traders will pledge the shares, invest with a stop loss, sell and exit quickly if the trade is not working according to plan. They will remove the pledge and pay small interest as the time is small.
The value investors on the other hand will require fund in down market. Higher quantities of shares will have to be pledged for same amount. Then they’ll wait for market to recover. Most probably the bottom formation will take time and increase the interest as the pledge has to be held for longer duration. Margin call risk increases with time as stop loss doesn’t work with value investing. Hence the saying " markets can stay irrational for longer than you can stay solvent".
Thanks for highlighting this risk. Can you please share any source or detailed information for this.
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