What Modern Traders Need to Know About the Crash of 1929

by Andrew McGuinness     Jul 16, 2019

It's a date that will live on in infamy for the rest of time: October 29th, 1929. Sometimes referred to by historians as "Terrible Tuesday," October 29th 1929 is remembered by most of the world as the day of the major stock market crash that plunged the American economy into despair. Suddenly and seemingly out of nowhere, the unthinkable and unimaginable had happened; the American economy was unviable, and everyone became a seller. Buyers were nowhere to be found, and everyone was selling their shares in a panic to the highest bidder. It was like if a signal was suddenly sent out in every trader on the market's mind that screamed "sell!" Shares traded hands at unprecedented rates, and it was undeniable that the "roaring 20's" (the name given to the massive period of economic growth between the years of 1918 and 1928) was officially over. At the end of the day, a whopping 16,410,030 shares had changed hands, and not even the largest and most seemingly untouchable corporations and industries had survived the massive decline in value. It was as if the whole world was turned upside down; in the span of just 24 hours, the rich had become poor and the middle class had been decimated by poverty.

But what caused the crash that destroyed entire families and zeroed bank accounts in as little as a single day? What caused all the most prominent buyers on the market to suddenly shift gears and sell their stocks in record numbers? While historians and economists are still asking themselves this very question to this day (almost 100 years after the major crash), there's one thing that we can say for certain: the market was powerless to withstand this ripple effect, and as soon as a few major buyers began unloading their shares, the market was tossed into a panic. Years later, after America had fallen to its lowest point, reports found that there were a number of unsafe market practices that contributed to the massive destruction caused by the crash. Surveys found that the massive crash was accelerated by the unhealthy levels of credit that were being given out by banks with little regard to what would happen in the event of a turn in the market. It seemed that lenders and banking institutions were so high on the success of the economy of the 20's that they paid little attention to what would happen if the market took a turn in the opposite direction.

Had these abuses not have taken place, the crash of 1929 would likely have occurred; it is a natural and unavoidable part of the market that, following a high, there will be a low. However, the reason that we see minor depressions and recessions today instead of a drained bank account is largely due to stricter regulations on the market. The Securities and Exchange Commission, established in the years of rebuilding after the crash, has tightened the regulations on information listed on the stock exchange, and currently helps control the use of credit on the market.

So what does all of this have to do with the modern Forex trading or stock trading investor? Knowing about the past history of the stock market helps traders understand that, thanks to increased scrutiny, there are preservations in place to prevent another massive depression. Forex trading and stock trading professionals can now trade with confidence, but they must understand that the rules are in place for a reason. They should not be tampered with or messed with, less there be another period of massive American decline.

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