Hi marketbrief.com; I worry about the people holding long overnight at 1:4 more than the people scalping during the day at 1:5 to 1:10.
Those bucket shops were an interesting phenomenon. Customers of regular brokers typically only got 50% margin - brokerages weren't into having customers that owed them money, just like today.
As far as the explanation for the catastrophe, I would say that the primitive mutual funds were a big cause. Before the SEC rules of 1933, they were simply stocks, and traded as such. Of course they usually traded at huge multiples to their book values (i.e. the value of the securities they owned.) In addition, they typically issued debt, and had the nasty habit of buying their own shares in a down turn. Naturally, the majority of them went bankrupt in the big 3-year bear market.
Nowadays, the equivalent of those 10:1 margins can be had at the futures pits. Now combined market averages are always a lot lower in volatility than individual stocks, but in broad market declines, stocks do tend to fall together. (I.e. stocks tend to rise separately, for their own particular reasons, but tend to fall together, for macroeconomic reasons. Incidentally, this causes a skew in the pricing of deep out of the money options on stock indices and individual stocks...)
Must be a dull market, I am running on...
-- Carl |
