182 THE WORK OF THE STOCK EXCHANGE 
identical with those involved in the purchasing on credit of any 
commodity, is at once apparent when we examine in detail a 
typical purchase of securities on margin as it is carried out 
through the machinery provided by the Stock Exchange. 
Let us suppose that just as Mr. Jones was about to purchase 
his house on credit, a relative had died and left him a house 
and that he had therefore resolved to invest the same amount 
of money, present and prospective, in securities instead. After 
some deliberation, Jones selects U. S. Steel common stock— 
let us say—as a security yielding satisfactory dividends and 
likely to advance in price. Having thus become a “bull” on 
Steel, he goes to his broker, a member of the New York Stock 
Exchange, and requests his assistance in purchasing 100 shares 
of Steel on credit. Steel is selling at 150, and consequently 
the cost of 100 shares will be $15,000. Jones puts up $5,000 
in cash as a part payment (or, as the financial phrase runs, a 
“so-point margin’), while his broker agrees to obtain credit 
for Jones for the remaining $10,000 needed to purchase the 
stock. The broker may loan Jones this $10,000 out of the 
funds of his own firm, or he may obtain that sum from a bank 
as a loan negotiated for and contracted in the name of his 
brokerage firm. 
In order to secure the loan, the broker will demand the right 
to hold Jones’s certificate for 100 shares of Steel when it is 
purchased.® In case the loan has been obtained from a bank, 
he is in turn obliged to allow the bank to hold the certificate 
until the loan has been paid off. Jones must, of course, pay 
interest on this $10,000 which he has borrowed. Meanwhile 
Jones is the owner of the 100 shares of Steel and is entitled to 
all dividends declared on it, which in normal times should 
roughly cover the interest charges on the borrowed funds 
involved by the transaction. Furthermore, if the price of Steel 
should climb upward to 170 and he should sell his 100 shares 
for $17,000, after paying off his loan of $10,000 and recover- 
3 See Avpendix IVI. and Chapter XI. p. 282.