Marginal Trading
Most people who trade in stocks buy on margin. The ordinary minimum
margin is about 20% of the purchase price, because banks usually lend
about 80% of the market value of stocks.
If you put up 20% of the purchase price of your stocks with your broker,
he has to pay the other 80%, but he can do that by borrowing that amount
from his bank, and putting up the stock as security. In this way brokers
are able t
as money can be borrowed. Of course, there are some stocks that are not
accepted by banks as collateral for loans, and you should not expect
your broker to sell such stocks on margin. In fact, if he offers to do
so, it looks as though he were running a bucket shop. See Chapter XVIII.
Many people think that buying stocks on margin is gambling and that
people should not do it for that reason, but buying on margin is done in
all lines of business, although it may not be known under that name. If
you bought stock outright, but borrowed 80% of the purchase price from
your banker to complete your payment for it and put up the stock with
him as security, you would be buying on margin just the same.
In like manner, if you bought a home and paid 20% with money you had and
borrowed the other 80% of the purchase price, you would be buying a home
on margin. The principal difference is that when you buy from a broker
on margin, one of the conditions of his contract is that he has the
right to sell your stock provided the market price drops down to the
amount that you owe on the stock, whereas if you borrow money on a home,
it is usually for a certain specified time and the lender cannot sell
you out until that time expires. However, in principle, there is very
little difference between the two transactions.
Most margin traders do not put up sufficient margin. If you put up only
the minimum margin, your broker has the right to call on you for more
margin if the price of the stock declines at all. Unless you are fully
prepared at all times to put up an additional margin when called upon,
you should make smaller purchases and put up a heavy margin when you
buy. The amount of margin depends upon the transaction, but we advise
from 30% to 50%, and at times we advise not less than 50% margin on any
purchase. In fact there are times when we advise not to buy stocks on
margin at all.
Those who wish to be entirely free from worry should buy stocks when the
prices are very low, pay for them in full, get their certificates, and
put them away in a safe deposit box. However, when stocks are low the
risk in buying on a liberal margin is very small, and the possibilities
of profit are so much greater, we do not see any objection to taking
advantage of this method of trading.
More
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A Correct Basis For Speculating
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Stock prices are influenced largely by manipulation. Years ago when the volume of trading on the New York Stock Exchange was small compared with what it is today, it was possible to influence the entire market by manipulation, but it would be very... Marginal Trading
Most people who trade in stocks buy on margin. The ordinary minimum margin is about 20% of the purchase price, because banks usually lend about 80% of the market value of stocks. If you put up 20% of the purchase price of your stocks with your b... Market Information
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It is due to the fact that stock prices constantly move up or down that speculation is possible. Sometimes certain stocks remain almost at a standstill for a long period of time, but at least a part of the stocks listed on the Exchanges move eithe... Possibilities Of Profit
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By short selling, we mean selling a stock that you do not possess, with the intention of buying it later. Short selling in general business is very common, and we think nothing of it. Manufacturers frequently sell goods that are not yet made, to b... Stock Some Terms Explained
There are certain terms used in connection with stock speculation that are very familiar to those who come in contact with stock brokers, and yet are not always familiar to those who do business by mail. Undoubtedly the majority of our readers are... Stop Loss Orders
A "stop-loss" is an order to your broker to sell you out if the market sells down a certain number of points. Many speculators place stop loss orders only two points from the market price. The idea is that when the market starts to go down it is l... Successful Speculation
Success in stock speculation depends upon a few things that are very simple. If you know what to buy, when to buy, and when to sell, and will act in accordance with that knowledge, your success is assured. You may think it is impossible to know... Technical Conditions
Technical conditions refer to the conditions that usually affect the supply and demand, such as short interests, floating supply, and stop loss orders. It is sometimes said that supply and demand must be equal or else there could not be any sal... The Desire To Speculate
It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to sto... The Money Market And Stock Prices
Perhaps no other one thing influences the movement of stock prices so much, in a large way, as money conditions. It is impossible to have a big bull market without plenty of money. During a bull market nearly all stocks are bought on margin, which... Two Kinds Of Traders
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You should sell stocks when the market price is too high. That is a general rule, but it is necessary for you to study all the influences affecting stock prices to be able to decide more accurately when you should sell your stocks. We give you, in...