speculators, who bought and sold rapidly), were bought “on margin.” A broker would lend the purchase money to his client, who merely put up a margin—an amount sufficient to protect the broker against loss if the price fell. Such stocks were, to use the technical term, “hypothecated.” When prices fell, the broker could either ask for a bigger margin from the client or sell the stock immediately to avoid a loss. The faster the price dropped, the more likely brokers were to dump hypothecated stocks, because they had less time to get more money from their clients. That drove the price down
...more
