Regulation: Trading Stock on the Margin

Trading Stock on the Margin

One of the culprits in the stock market crash of 1929 was margin buying, the practice whereby brokers sold stocks for little or no money down. As a result, Congress in 1934 set up regulations that forced investors to put up more cash. The Federal Reserve got the authority to establish the minimum amount, which at times has been 100% but is currently 50%. A $1,000 stock purchase must now be backed by $500 in cash from the buyer.

Federal Reserve Chairman Paul Volcker contended last week in a cover letter accompanying a 189-page report that such federal regulations are no...

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