THE ROARING 20S 1920 1929
AMERICAN ORGANIZED CRIME OF THE 1920S
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Buy stocks when prices are low, then sell when prices are high
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Buy stocks without having to take out a loan
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Using an installment plan to purchase goods
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Buying goods at the lowest price, then selling for a higher profit
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Detailed explanation-1: -arbitraging; arbitraged. “Buy low, sell high” is the mantra of the stock market. Perhaps the most extreme example of this is arbitrage, the act of buying and selling goods simultaneously in different markets to gain an immediate profit.
Detailed explanation-2: -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.
Detailed explanation-3: -To buy stocks on margin, a margin account must be opened and approval obtained for the loan. If the stock’s price rises, the investor can sell the stock, repay the loan, and keep the profit. If the stock’s price falls, the broker may issue a margin call, requiring more cash or selling the stock.
Detailed explanation-4: -The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let’s say the stock you bought for $50 falls to $15. If you fully paid for the stock, you would lose 70% of your money. However, if you bought on margin, you would lose more than 100% of your money.