How did buying on margin and speculation cause the stock market to rise

No ad for bid response id: Cannot find ad by given id: Go Log In Sign Up.

How did the practices of buying on margin and speculation cause the stock market to rise?

What would you like to do? How did the practice of buying on margin and speculation cause the stock market to rise? Would you like to merge this question into it? Would you like to make it the primary and merge this question into it? Merge this question into. Split and merge into it. Buying on margin allows people to leverage their cash to 2X the size, with a loan from their broker.

Investors use margin to trade bigger positions, without having the money for those trades in hand.

So margin allows for more money to flow into the stock market, causing individual stocks to rise. But in order to trade with margin, you have to maintain a certain amount of leverage cash in your account. If a stock price falls, a broker may require you to put more cash in your account What is happening is that many investors can't come up with the cash and their stocks are sold automatically so the value of the initial loan is preserved.

The avalanche starts as more and more investors are forced to sell when they don't have cash available. Was this answer useful?

In Investing and Financial Markets , History of the United States , Stock Market , The Great Depression. Retired professor of math and computer science having taught for 36 years at a state supported university in Virginia. You have to be a broker with a seat on the exchange to trade stocks on the stock exchange. You can get such a broker to buy and sell for you, but he will charge a commission.

Stock Market Crash of

In short, a person is buying with money they do not have, but are borrowing from their broker. A person does that so as to buy more of a stock they believe will go up in value …. A broker does this because he assumes that the person has more information on this than he does, and wants to make money, too.

However, not all stocks go up in value, some decline. And then the person and broker are compelled to sell what stocks they have to cover the losses. If stock prices were already going down across the board, the dumping of another amount of stocks on to the market exacerbates this downward trend. The above answer is very short, very simplistic and very generalized - I know, I'm the one who just wrote it. It will do for general purposes.

For greater detail, google "margin" or consult a competent financial analyst in your area. So long as you are simply asking for information purposes, there are probably some college economic professors or local bankers who'd be more than happy to assist.

If the stock price dropped too low the bro … ker could issue a "Margin Call" which means that the person has to repay all of the money that the broker put down. People often used this in the s in order to buy more stock for less. If you were to sell the stock, the broker would get his money back plus a portion of the profits. I am an Army veteran who has worked in the graphic arts, photography, transportation and retail industries.

Margin means you're borrowing money to buy stock. It's also one of the few ways you can lose more in the stock market than you invested in the first place. In Investing and Financial Markets. I am a curious character. Categories you should follow. Log in or Sign Up to follow categories.

What type of colonies did the new England have? History of the United States. What are the Superstitious beliefs without scientific basis? What country in Africa is north of the equator? What is the influence of Chinese cuisine in Asian cuisine? Buying on the margin means that you borrow some money from your broker in order to buy stock. This is usually an option when you can only afford 18 shares of stock, but you wa … nt to get 20 shares.

This way, you can pick up more stock than you could have using solely the money in your brokerage account, and either pay back later or have your broker initiate a funds transfer request on your behalf to cover the extra expenses Choose a video to embed.