Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Ilaine who wrote (13930)	1/26/2002 12:07:09 AM
From: Moominoid	Read Replies (1) of 74559

It's hard to end up owing money to the broker when buying stock on a 50% margin unless there is a very sudden fall in the market or you have everything in one stock. If you had bought ENE at $4 on 50% margin and then it fell to less than $1 the next day, you would owe money to the broker. It is easier to end up owing money in the futures/options markets where margins are smaller. Back in 1929 you could apaprently have margin for stocks as low as 10% before regulation of margin in the US was brought in. The futures and options markets are zero sum in the sense that each long position is matched by a short position, though the third parties - brokers and market makers are getting their cuts. But the zero sum aspect doesn't make any difference to the person on the losing end. In the stock market that is not the case. A long position isn't matched by a short position. - so it isn't zero sum in any sense. There are only long stocks some fraction of which are borrowed and sold short. Currency markets are also zero sum and margins are often a few percentage points only. David

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