USA HISTORY

Detailed explanation-1: -Buying on margin was riskier than other ways of investing in the stock market why? because if the stock price dropped, brokers could force investors to repay their loans.

Detailed explanation-2: -The biggest risk from buying on margin is that you can lose much more money than you initially invested. A decline of 50 percent or more from stocks that were half-funded using borrowed funds, equates to a loss of 100 percent or more in your portfolio, plus interest and commissions.

Detailed explanation-3: -Buying on margin occurs when an investor buys an asset by borrowing the balance from a bank or broker. Buying on margin refers to the initial payment made to the broker for the asset-for example, 10% down and 90% financed. The investor uses the marginable securities in their broker account as collateral.

Detailed explanation-4: -Margin calls are demands for additional capital or securities to bring a margin account up to the maintenance requirement. Brokers may force a trader to sell assets, regardless of the market price, to meet the margin call if the trader doesn’t deposit funds.

Detailed explanation-5: -A failure to promptly meet these demands, known as a margin call, can result in the broker selling off the investor’s positions without warning as well as charging any applicable commissions, fees, and interest.