Buying on the Margin
Dow jones industrial average collapsed
continued selloff took place until 1932 when the DJIA was 89% of its 1929 peak
People threw themselves out of buildings
Businesses go bankrupt
Banks close
Depression begins
continued selloff took place until 1932 when the DJIA was 89% of its 1929 peak
People threw themselves out of buildings
Businesses go bankrupt
Banks close
Depression begins
Borrowing money to buy stock in the hope that it will go up and you can repay the loan and collect the difference
overproduction
stock market
tariffs
international debt
weak european economy
overproduction
stock market
tariffs
international debt
weak european economy
What happens when you buy stocks on margin? are you using your own money?
Buying on margin is an example of using leverage to maximize your gain when prices rise. Leverage is simply using borrowed money to increase your profit. This type of leverage is great in a favourable market, but it works against you in an unfavorable (bear) market. Say that a $100,000 house you purchase with a $90,000 mortgage falls in value to $80,000 (and property values can decrease during economic hard times. Your outstanding debt of $90,000 exceeds the value of the property. Because you owe more than you own, it is negative net worth. Leverage is a double-edged sword.