The buying on margin ( buying stock on margin English) or purchase leverage is the fact of buying securities with the help of a bank loan . The investor then speculates in order to repay the debt and its interest , and if possible to incur a capital gain. This technique allows gains and potential losses to be greater, since the number of securities held is higher. Note that the purchase of these securities is generally done through a margin account, the “traditional” securities accounts only allowing the purchase in cash. This system is therefore risky because in case of loss, the investor will have to repay the debt and his interest with money he no longer has.
During the interwar period , many Americans used this technique to earn a lot of money quickly and to access the American dream . Yet a speculative bubble developed and grew until it burst on Black Thursday , leading to the 1929 crash . The US stock indexes then lost more than half of their value, leading to many individuals (who often had low incomes and had put all their savings) who adopted the overbought purchase over indebtedness.. They found themselves in such a situation that they could not repay the banks that in the United States were then multiple and undeveloped, so fragile. This resulted in the bankruptcy of many financial institutions and the suicide of hundreds of individuals and professionals ruined.