Long Account

This term designates a stock or other account on the ledger of a broker which shows one or more purchases made in expectation of a rise in the price of the particular security which is in the account. The same term also applies to similar purchases of grain, cotton, coffee, etc. It is just the reverse of "short account," the latter designating securities sold "short."

In speculation this term is applied in a broad sense, to the various operations employed for the working of stock or other quotations up or down, or both ways, as the case may be. Among the familiar methods employed for thus affecting the prices of securities, is the dissemination of reports, sometimes true and sometimes false, to affect the prices of particular stocks; the circulation of rumors, coloring of news or suppression of facts. In the sensitive, mercurial atmosphere of Wall Street, rumors are often most potent in affecting stock quotations, and often prices are temporarily changed to a very absurd and abnormal extent by such methods. In addition, there are other more positive ways of manipulating prices, a favorite one being what is known as "wash sales." "Washing" in Wall Street consists of buying and selling a given security at the same price and at the same time. The operator wishes to advance a stock in price and gives to one broker an order to bid the stock up on a scale; that is to say, the broker is instructed to offer to buy a certain amount of stock, bidding for each lot 1/8 of one per cent. above the last price paid. At the same time, the operator gives another broker an order to sell the same amount of stock at similar prices. Thus, other things not interfering, the operator raises the price of the stock without actually buying anything. If, on the other hand, the operator desires to depress the price of a stock, similar methods are employed, except that they are reversed.

Pools are often formed in Wall Street to manipulate stocks, in which cases, everything is usually done on a much more comprehensive scale than when only a single operator is carrying on the washing process.

The money deposited with a banker or broker by an operator or speculator in stocks or in grain, cotton, coffee, and so forth, to protect the broker against loss. In other stocks the amount of margin required by a broker varies from 5% to 20% of the par value, according to the kind of security dealt in, or the character of trading done. The average margin is 10%, which is equal to $1,000 on 100 shares of stock, or on $10,000 of bonds.

Stocks or bonds bought on margin by a broker for a customer are at all times, in the absence of an agreement to the contrary, subject to the order of the customer. A customer has the right to demand delivery at any time of the securities upon payment of the amount owing on them, including commissions, interest and any other proper expenses or charges. At the same time, unless there is a specific agreement to the contrary, the broker may at any time, upon giving proper formal notice, require the customer to "take up"; that is, pay in full for the stocks or other securities which are being carried. If the customer is short of stocks the broker may demand that he buy the stocks or otherwise close out his account.

When 100 shares of stock is bought at the New York Stock Exchange on a 10% margin (the price being $100 per share), the broker executing the order receives the stock and pays $10,000 for it to the broker from whom it is purchased. The buying broker having received only $1,000 from his customer, thus advances $9,000 additional, which he treats as a loan to the customer, holding the stock as security for the money so advanced. On the amount of money so advanced he charges the current rate of interest. Should the stock be later sold at 115, $11,500 could be received for it. The gross profit on such a transaction would be $1,500, but from this amount would be deducted the broker's commission and the interest on the money advanced by the broker.

In the event of a stock declining below the purchase price, the customer is of course required to deposit more margin. If he fails to do this, the broker has the right to "sell him out"; that is to say, to sell the stock for what it will bring, after which he will return to the customer whatever balance, if any, is due the latter, less whatever commissions, interest or other expenses that may have properly been charged.

If a speculator sells a stock short he deposits margin the same as he does when he buys a stock. If the stock is sold at 100 and is bought back at 90 the speculator's profit would be $1,000, less the broker's commission. Should the stock advance to any considerable extent, the customer is, of course, required to deposit sufficient additional cash to keep his margin intact; in the event of his failure so to do, the broker may close him out by buying in the stock at the lowest price and settling the difference, if any, less the commission, etc.