Markets in stocks and commodities from a vital part of the American economic system. Millions of individuals buy and sell small lots of stocks and commodities while mutual funds and trusts trade in large lots. In good times, when it appears that prices will rise, money from savings or from other types of investment flows into the market. When this happens, prices are driven higher. Often a period of speculation follows in which the 'bulls,' those who make money on a rising market, are in the ascendant. When the market can no longer sustain the speculative fever, a reaction sets in, selling develops, and prices begin to fall. At this point the 'bears,' or those who make money in a falling market, are the gainers.
Americans but many things on credit, and stocks are no exception. Usually an investor can make a stock purchase by paying 50 percent down and getting a loan on the remainder. This is called a 'margin' of 50 percent. The balance is borrowed from the brokerage house and the stock certificates are deposited with the broker 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 ( those with access to special information ) 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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