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Why was stock bought on margin considered a risky investment? Investors purchased the stocks with little cash down; if the price dropped the investor had to repay the loan. Stocks purchased on margin were often for companies that had little or no value. Investors paid high interest rates to buy these stocks; they needed a substantial return to make money. If the value of the stock declined, brokerages were responsible for the loss.



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Stocks bought on margin are considered risky investments because these stocks are purchased with a loan and therefore, require a higher return in order for the holder to make money and repay the loan that was taken. Also if the stocks were to lose money then the stockholder would lose a great deal of money in attempting to repay the loan. 

Answer:

Stocks purchased on margin were often for companies that little or no value.

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