The stock market
Buying sharesFinancial stakes in a company or business. became increasingly popular and profitable for people who could invest in the stock market A term which can refer to stocks and shares and stock exchange, buying and selling shares, the overall value of shares sold in a stock exchange.
Confidence
When Herbert Hoover became president in 1929, he said to the American people:
I have no fears for the future of our country 鈥 It is bright with hope.
The economic boomA period when the economy expands and grows. created optimism about the American economy. Many believed that economic growth and profits would continue indefinitely. Businesses seemed strong, the wages of workers were rising and the economic policies of the Republican PartyOne of the two major American political parties. Republicans tend to hold a more conservative viewpoint on politics and society. appeared to be extremely successful. This confidence was reflected in a stock market boom.
Shares
The main American stock exchangeA centralised market where business shares are traded. is located on Wall Street, New York. A stock exchange is a marketplace where investorA person or group that buys part of a business with the aim of making money. can buy and sell sharesFinancial stakes in a company or business. in businesses. In the 1920s, as business profits soared, investors were attracted to buy shares of those company that were doing well. These shares then gave investors a portion of the profits that the companies were making. Throughout 1927, the number of shares traded had risen to around 577 million.
Buying on the margin
Investment in the stock market became much more accessible to people because many could buy shares using a form of on creditWhen something is bought on credit, it means the customer acquires an item immediately but permission is given for them to pay for it later. Speculators could buy shares on the marginA process where people borrow money in order to be able to buy shares. They could make a small down payment (usually 10 per cent) and borrow the rest to buy shares. Investors were speculatingTaking a risk in the hope that the price of shares will rise so profits can be made. that the prices of shares would rise. When this happened, people could pay back the rest of the debt from the large profits that they made.
A lot of people saw this as an opportunity to make money quickly. This encouraged more people to buy shares. Speculation boosted the prices of shares, which in turn boosted profits.