USA HISTORY

Detailed explanation-1: -Many were buying stocks on margin-the practice of buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or a broker-in ratios as high as 1:3, meaning they were putting down $1 of capital for every $3 of stock they purchased.

Detailed explanation-2: -Buying on Margin In the 1920s, the buyer only had to put down 10–20% of his own money and thus borrowed 80–90% of the cost of the stock. Buying on margin could be very risky.

Detailed explanation-3: -"To margin” or “buying on margin” means to use money borrowed from a broker to purchase securities. You must have a margin account to do so, rather than a standard brokerage account.

Detailed explanation-4: -During the 1920s, the U.S. stock market underwent rapid expansion, reaching its peak in August 1929 after a period of wild speculation in the Roaring Twenties. By then, production had already declined and unemployment had risen, leaving stocks in great excess of their real value.

Detailed explanation-5: -Buying on margin involves getting a loan from your brokerage and using the money from the loan to invest in more securities than you can buy with your available cash. Through margin buying, investors can amplify their returns-but only if their investments outperform the cost of the loan itself.