1. L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY B UYING ON M ARGIN AND S ELLING S HORT L ESSON 8

2. L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Bull Markets and Bear Markets A bear market is a stock market with falling prices over an extended period of time. Selling short can increase gains in a bear market. A bull market is a stock market with rising prices over an extended time. Buying on margin can increase gains in a bull market. L ESSON 8 – B UYING ON M ARGIN AND S ELLING S HORT S LIDE 8.1

3. L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Margin Buying: The Good and the Ugly Own Capital Borrowed Capital P1SharesP2PositionProfitReturnOwn Capital No Leverage Price Increases 10% $100$0$1001$110 $1010%$110 Leverage 10-1 Asset Price Increases 10% $100$900$10010$110$1,100$100100%$200 Leverage 10-1 Asset Price Decreases 10% $100$900$10010$90$900-$100-100%$0 L ESSON 8 – B UYING ON M ARGIN AND S ELLING S HORT S LIDE 8.2