How did speculation make the stock market climb?

Answer 1

Companies offered shares of their stock for sale to the public to generate capital. The public in pre-1929 era bought stock. When buying stocks on margin, one could buy stocks without the money to purchase them and demand led to high prices.

Answer 2

Buying on margin allows people to leverage their cash to 2X the size, with a loan from their broker. Investors use margin to trade bigger positions, without having the money for those trades in hand. So margin allows for more money to flow into the stock market, causing individual stocks to rise.

But in order to trade with margin, you have to maintain a certain amount of leverage (cash) in your account. If a stock price falls, a broker may require you to put more cash in your account...if you don't have it, your stocks are sold. What is happening is that many investors can't come up with the cash and their stocks are sold automatically so the value of the initial loan is preserved. The avalanche starts as more and more investors are forced to sell when they don't have cash available.

Answer 3

what possible function can speculations have appart from offering the speculator the chance to make a lot of money