Socius News381.17. That was the Dow Jones Industrial Average on 3 September 1929, six times its level of August 1921. By mid-November it had lost almost half its value. Three years later, on 8 July 1932, it closed at 41.22, 89% below the peak. It did not see 381 again until 23 November 1954. Twenty-five years.
The crash is usually told as a story about greed, or about the Federal Reserve, or about the Depression that followed. This piece tells it as a story about one number: the 10% that buyers put down on a stock in 1929, borrowing the rest against the shares themselves. That number decided who survived October and who did not. It is the same number your journal computes today under a different name.
How much was borrowed, and against what?
In the 1920s, a buyer typically put down 10% of a stock's price and borrowed the other 90% from a broker. The shares were the collateral. The broker in turn borrowed from banks, and non-bank lenders invested increasing sums in loans to brokers. The Federal Reserve History essay by Richardson, Komai, Gou and Park describes borrowed money flowing into equity markets from both channels.
The Federal Reserve Bank of Boston puts the scale in perspective: margin loans often accounted for more than 10% of the New York Stock Exchange's market value during the 1920s, with some estimates at 20% or more. In 2001, when that comparison was written, the figure was 1% to 2%.
10%
Typical 1929 margin
Buyer put down 10%, borrowed 90% (Federal Reserve History)
10%+
Margin loans as share of NYSE value, 1920s
Some estimates 20% or more; 1% to 2% in 2001 (Boston Fed)
89%
Dow peak to trough
381.17 on 3 Sep 1929 to 41.22 on 8 Jul 1932
25 years
Time to regain the 1929 peak
23 November 1954
The Federal Reserve saw the loans and did not like them. Through 1929 the Board repeatedly denied requests from the New York Fed to raise the discount rate. In August 1929, New York's discount rate finally reached 6%. The Board's concern was the diversion of credit into speculation. The market kept rising for another month.
What does 10% margin do to a 13% day?
The arithmetic is the whole story. A buyer who puts down 10% controls ten times their equity. A 5% fall in the stock erases half the equity. A 10% fall erases all of it. Anything beyond 10% is the broker's loss until the broker sells the collateral. That is what a margin loan is.
On Monday 28 October the Dow fell nearly 13%. On Tuesday 29 October it fell nearly 12% more. A position opened at 10% margin near the top had no equity left before the Monday close. A position that cannot meet the call is sold by the broker, whatever the owner thinks of the price. Volume shows the scale: a record 12,894,650 shares on Thursday 24 October, then 16 million on the 29th.
August 1921
Dow at 63
The starting point of an eight-year rise that would multiply the index by six.
August 1929
New York discount rate at 6%
The Fed had spent the year debating whether to tighten against speculative loans. Rates rose. Prices did not fall.
3 September 1929
Dow at 381.17
The peak. A buyer at 10% margin here controlled ten dollars of stock for one dollar of equity.
24 October 1929
Black Thursday
12,894,650 shares change hands, a record for the exchange.
28 October 1929
Black Monday
The Dow loses nearly 13% in one session. Ten-to-one positions opened near the top have no equity left.
29 October 1929
Black Tuesday
Nearly 12% more on 16 million shares.
8 July 1932
Dow at 41.22
The twentieth-century low, 89% below the peak.
1 October 1934
Regulation T
The Federal Reserve sets the first initial margin requirement, 25% to 45%. Margin is no longer the broker's choice.
23 November 1954
Back to 381
The Dow closes above its 1929 high for the first time.
3 January 1974
50% initial margin
The Regulation T level still in force today.
The New York Fed's response after the crash was fast by the standards of the time. It bought government securities in the open market, expedited lending through the discount window, lowered the discount rate and told commercial banks it would supply the reserves they needed. That kept banks supplied with reserves. It did not restore the equity that had been borrowed and lost.
Why did the drawdown last 25 years?
Because the crash was only the first leg. The contraction ran from August 1929 to March 1933, when the commercial banking system collapsed. From the fall of 1930 through the winter of 1933, the money supply fell by nearly 30% and prices fell by about the same. Leverage that had been a tailwind on the way up became a debt that had to be repaid in dollars that were worth more every month.
Dow Jones Industrial Average, 1921 to 1954
Index level at the dates cited by Federal Reserve History
Source: Federal Reserve History, Stock Market Crash of 1929
An 89% drawdown needs a 809% gain to recover. That is arithmetic, not opinion, and it is the reason a drawdown number matters more than a return number. The market took until 1954 to produce it.
Was the Federal Reserve to blame?
For the crash, the record is mixed. Through 1929 the Board in Washington and the Federal Reserve Bank of New York disagreed about how to deal with speculative credit. New York's governor, George Harrison, favoured raising the discount rate. The Board denied several requests before agreeing, and the 6% rate arrived in August, a month before the peak. Richardson and his co-authors do not claim that the rate rise caused October. They describe an institution that saw the leverage building, argued about the tool, and acted late.
For what followed, the Federal Reserve's own historians are blunter. The contraction from 1929 to 1933 was made worse by a money supply that was allowed to fall by nearly 30%, and the banking system collapsed in March 1933. In 2002, Ben Bernanke, then a Fed governor, said of the Great Depression: "we did it. We're very sorry." That admission is about policy after the crash, not about the margin loans before it.
The distinction matters for a trader. The Fed could not have made a 10% margin position survive a 13% day. No policy can. The only decision that protected an account in October 1929 was taken before October, by whoever chose how much to borrow.
What changed in the rules?
The Securities Exchange Act of 1934 gave the Federal Reserve authority over securities credit. Regulation T took effect on 1 October 1934 with an initial margin requirement of 25% to 45%. The Board moved it more than twenty times over the following four decades, between 40% in November 1937 and 100% in January 1946, before settling at 50% on 3 January 1974. That level has not changed since.
The Boston Fed summarises the layers in force today: Regulation T requires a buyer to have equity equal to at least 50% of the purchase, the exchanges require a maintenance margin of at least 25%, and brokers typically ask for 30% to 35%. A buyer in 1929 could run ten-to-one. A buyer in a US margin account today runs two-to-one at most. The leverage that decided October 1929 is not permitted in that market.
Leveraged retail products elsewhere are a different regime, and your own numbers are the only ones that tell you where you stand.
What your journal would have shown
The following figures are illustrative demo data, not a historical account.
Take a demo account that bought a basket of the leading stocks on 3 September 1929 at 10% margin, with equity of 10,000 dollars controlling 100,000 dollars of stock. A journal that tracked exposure would have displayed one figure above everything else: effective leverage, 10.0x. It would have displayed a second: the price move that takes equity to zero, 10%. Neither number depends on a forecast. Both were knowable on the day the position was opened.
By the close of 28 October, with the index down nearly 13% from the previous session and much further from the peak, the same journal shows equity at zero and a margin call the account cannot meet. The R-multiple view shows the trade at roughly -10R if the trader had defined 1R as a 1% move against the position, which is what a 10% margin implies. Nobody in 1929 wrote it down that way. The arithmetic was the same.
Your journal computes the modern version of these numbers from your executed trades: drawdown from the equity peak, R-multiples against the risk you actually defined, results by instrument and by session. Socius Trades reads that history from your cTrader or MetaTrader account and shows it. It never places, closes or modifies a trade. We look. We never touch.
“1929 was not a failure of forecasting. Nobody needed to predict October. The 10% was enough to know the outcome of a 13% day.”
Trading involves risk of loss. Socius Trades is an analytics tool, not investment advice.