Case: the Crash of 1929

History does not repeat exactly, but its lessons rhyme. This case revisits the 1929 crash for what it teaches about leverage and crowd psychology — themes from the Risk Management and Trading Psychology tracks.

What happened

Through the 1920s, US stocks rose for years in a climate of easy optimism. Many ordinary people bought shares on margin — borrowing up to 90% of the purchase price. In late October 1929, the market broke. Margin-financed positions were force-sold to repay loans, which pushed prices lower, which triggered more forced selling — a self-reinforcing spiral. The market eventually lost the vast majority of its value and did not fully recover for years, deepening into the Great Depression.

Lesson 1 — Leverage cuts both ways, violently

Borrowing to invest magnifies gains on the way up and destroys capital on the way down. The same 1:10 leverage that felt like genius in 1928 wiped people out in 1929. This is the exact warning the Forex track gives about margin: leverage is available, not mandatory.

Lesson 2 — Crowds are not a forecast

"Everyone is getting rich" is a description of the past, not a prediction of the future. Euphoria where no one can articulate the risk is itself the risk. The Trading Psychology track calls this herd behavior; 1929 is its most famous example.

Lesson 3 — You cannot pay debts with paper gains

Unrealized profit is not money until it is sold — and in a crash there may be no buyer at your price. Position so that a forced sale never controls your decisions.