It is our opinion that more money is lost by the public in manipulated stocks than in promotion stocks, and we read a great deal about the enormous losses in them. Promotions that are failures may be perfectly legitimate and conducted in the utmost good faith, but manipulations are nearly always for the purpose of swindling the public. However, the lure of them is so great many people cannot withstand the temptations of them even after they have been "trimmed" several times.
PART FOUR
TOPICS OF INTEREST TO SPECULATORS
CHAPTER XVI.
MARGINAL TRADING
Most people who trade in stocks buy on margin. The ordinary minimum margin is about 20% of the purchase price, because banks usually lend about 80% of the market value of stocks.
If you put up 20% of the purchase price of your stocks with your broker, he has to pay the other 80%, but he can do that by borrowing that amount from his bank, and putting up the stock as security. In this way brokers are able to handle all the margin business that comes to them, as long as money can be borrowed. Of course, there are some stocks that are not accepted by banks as collateral for loans, and you should not expect your broker to sell such stocks on margin. In fact, if he offers to do so, it looks as though he were running a bucket shop. See [Chapter XVIII].
Many people think that buying stocks on margin is gambling and that people should not do it for that reason, but buying on margin is done in all lines of business, although it may not be known under that name. If you bought stock outright, but borrowed 80% of the purchase price from your banker to complete your payment for it and put up the stock with him as security, you would be buying on margin just the same.