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Americans buy almost everything on credit, and stocks are no exception. Usually an investor can make a stock purchase by paying 50 per cent down and getting a loan on the remainder. This is called "margin" of 50 percent. The balance is borrowed from the brokerage as security. The Federal Reserve Board regulates the minimum margins, the amount that must be paid in cash as a percentage of purchase. The minimum margins vary, depending on whether there is need to stimulate the market or curb its speculative enthusiasm. The flurry of buying and selling also creates temptation for insiders to try and manipulate the market in a given stock. While this illegal activity was once commonplace, it happens less frequently now, owing to active policing by the Federal Securities and Exchange Commission. |
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