Question

How did the practice of buying stocks on margin contribute to the crash of the stock market in 1929?

Answer 1

Answer:

The practice of buying stocks on margin contributed to the crash of the stock market because the facility to pay for the stocks from the profit gained from the stock increased the demand enormously and eventually resulted in the crash of the stock market.

Explanation:

• The term 'margin' in 'stocks on margin' referred to the time margin that the stockholder would get to pay for the stock that he has purchased with a certain predetermined amount way too less than the actual price of the stock.

• This facility of buying stocks on margin dispensed by the stock market in 1929 fetched great demands for the stocks resulting in its crash.