If Your Broker, Brokerage Firm, Financial Advisor or Investment Consultant Engaged In Improper Margin Practices or Failed To Disclose Risks Of Trading on Margin, You May Have An Improper Use or Disclosure of Margin Claim Against Your Broker.
-Report Improper Margin Practices Or Margin Disclosures-
Did Your Broker or Financial Advisor Explain How Margin Works?
Margin is collateral that the holder of a position in securities, options, or futures contracts has to deposit to cover the credit risk of his counterparty (most often his broker). The collateral can be in the form of cash or securities, and it is deposited in a margin account. With a margin account, investors borrow money from a brokerage firm to purchase securities. The portion of the purchase price that must be deposited is called margin and is the initial equity or value in the account. The loan from the securities firm is secured by the securities purchased.
What is A Margin Call?
If the securities the investor is using as collateral go down in price, the broker can issue a margin call, i.e., a demand that the investor repay all or part of the loan with cash, a deposit of securities from outside the account, or by selling securities in the account.
Does Margin Cost Money?
Buying stocks and other securities on margin carries a cost. This cost is the interest you will pay on the amount you borrow until it is repaid. Margin interest rates generally vary based on the current “broker call rate” or “call money rate” and the amount you borrow.
Is Your Broker Profiting From Your Use Of Margin?
Margin loans can yield high profits for your broker or brokerage firm. Your broker may receive fees based on the amount of your margin loans, including a percentage of the margin interest you pay on an ongoing basis.
Margin Trading Can be Risky Business. Did Your Broker Advise You Of The Risks of Using Margin?
Investors generally use margin to leverage their investments and increase their purchasing power. At the same time, investors who trade securities on margin have the potential for higher losses. Margin magnifies gains as well as losses. As a result, there are additional risks involved with trading on margin that your broker or brokerage firm must disclose to you.
The risks in using margin or in margin trading include, among other things, the following:
- Trading securities on margin brings with it the potential for higher losses.
- You can lose more funds than you deposit in the margin account. A decline in the value of securities or
futures contracts that are purchased on margin may require you to provide additional funds or you
must put up margin to avoid the forced sale of those securities or futures contracts or other assets in
your account(s). - Your broker may force the sale of securities or other assets in your account(s). If the equity in your account falls below the maintenance margin requirements, or if your broker has higher “house” requirements, your broker may sell the securities or futures contracts or other assets in any of your accounts held at the brokerage firm to cover the margin deficiency. You also may be responsible for any shortfall in the account after such a forced sale.
- Your broker may sell your securities or other assets without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid, and that the firm cannot liquidate securities or other assets in their accounts to meet the call unless the firm has contacted them first. This is not the case. Brokers generally will not issue margin calls and may immediately sell your securities or futures contracts without notice to you in the event that your account has insufficient margin.
- You are not entitled to choose which securities or futures contracts or other assets in your account(s) are
liquidated or sold to meet a margin call. Your broker has the right to decide which positions to sell in order to protect its interests. - Your broker can increase its “house” maintenance margin requirements at any time and is not required to provide you with advance written notice. These changes in firm margin policy often take effect immediately. Your failure to maintain adequate margin in the event of an increased margin rate generally will cause your broker to liquidate or sell securities or futures contracts in your account(s).
- If your broker chooses to issue a margin call rather than immediately liquidating undermargined positions, you are not entitled to an extension of time on the margin call.
Your broker should advise you of these risks and all others related to trading securities on margin. Your broker should make clear all the risks involved with trading on margin.
If you have suffered financial loss or damages because of your brokers improper use of margin or lack of disclosure of margin risks you may be able to recover your losses from your stockbroker or brokerage firm.
-Recover Losses From The Improper Use of Margin Or Disclosure Of Margin Risks-
If Your Broker, Brokerage Firm, Financial Advisor or Investment Consultant Improperly Used Margin In Your Account Or Failed To Properly Disclose The Risks Of Using Margin, Contact A Securities Arbitration Lawyer.
-Request A Free Review By A Securities & Investment Attorney-
If You Were The Victim Of Improper Margin Practices or Disclosures, Share Your Experiences With Other Investors Below.
