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.
One of the reasons why stock bought on margin is considered a risky investment is because "Investors purchased the stocks with little cash down," meaning that they had to borrow the remained of the money.
