The work of the Stock Exchange

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Monograph

Identifikator:: 1831284952

URN:: urn:nbn:de:zbw-retromon-225876

Document type:: Monograph

Author:: Meeker, James Edward http://d-nb.info/gnd/126597340

Title:: The work of the Stock Exchange

Edition:: Revised edition

Place of publication:: New York

Publisher:: The Ronald Press Company

Year of publication:: [1930]

Scope:: XVI, 720 Seiten; Illustrationen, Diagramme

Digitisation:: 2022

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter VII. Credit transactions in securities

Collection:: Economics Books

198 THE WORK OF THE STOCK EXCHANGE crease the supply of it. Conversely, every seller tends to lower prices by increasing supply and decreasing demand. These laws operate in the establishing of prices utterly irrespective of whether purchases or sales are made outright or on credit. The outright purchaser of 100 shares of Reading tends to raise the price of this stock just as much as a margin purchaser of the same amount, and an outright seller tends to depress its price just as much as a short seller, if they sell the same amount of stock. But there is this difference, as regards their effect upon prices, between purchases and sales made outright and those made on credit. The outright purchaser tends more perma- nently to increase the price of the stock he purchases, since he usually withdraws for a long period a number of shares from the supply. Also, the outright seller tends more permanently to depress stock prices, since in most cases he does not soon buy back his stock. Credit transactions in stocks, however, almost always involve both a purchase and a sale. The buyer on margin must ultimately prove a seller before he can obtain his profit, and for the same reason the short seller in the end must buy stock. Moreover, both margin purchases and short sales must usually be terminated within a reasonably short period, lest interest charges and dividends eat up all hope of profits. In consequence, it is obviofis that the buyer on margin at first tends to raise prices and later to lower them; and that similarly, the short seller for the time being tends to lower prices, but later to raise them again. Thus a double check is created against the undue inflation of the price above, or the undue depression of prices below, the actual value of any security in which active speculation occurs on the Stock Exchange. Automatic Checks Against Inaccurate Prices.—Let us suppose that the actual inherent value of 1 share of U. S. Steel common stock is really $150. Should the price of this stock rise to 175—or higher than its value warranted—the margin 18 See Chapter II. po. 47.

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