Margin Accounts

Rigorous rules have been enacted to govern margin accounts because of the possibility of self-dealing and abuse that comes from “loansharking” practices. A margin account includes the purchase of securities by paying the purchase price in full or by borrowing part of the purchase price. If the customer borrows funds from a brokerage firm, the firm will open a margin account. The portion of the purchase price that the customer must deposit is called margin and is the customer’s initial equity in the account. The loan from the firm is secured by the purchased stocks.

Note that buying on margin is essentially gambling with borrowed money. It is risky because the customer must repay the amount borrowed with interest, even if the securities purchased lose value, thus the customer can lose more than the amount deposited into the margin account.

Also, securities purchased on margin are collateral that the brokerage firm can sell without notice to satisfy a margin call. A margin call may occur when the equity in the margin account value temporarily drops. Short-term price fluctuations can cause a customer to lose his entire investment and end up owing money to the brokerage firm.

That is why margin is only suitable for trading and speculation, not for long-term investing!

Some unscrupulous brokerage firms automatically open margin accounts for investors. In claims of margin abuse, it is not unusual to find a substantial portion of the customer’s assets traded on margin, and that the broker failed to disclose or adequately explain the risks of margin trading. Firms can only extend credit to the limit of a customer’s liquid position. Violations of margin rules must be reviewed to quantify losses from unsuitable margin activity.

Call for a Free Consultation!

From offices in Connecticut and Florida, securities fraud lawyer Howard M. Rosenfield has been representing investors nationwide in securities arbitrations and mediations for over 30 years. Please call now, toll-free, for more information if you believe that you suffered an investment loss: (860) 677-4334.

Client Reviews
★★★★★
Howard Rosenfield is truly a life saver. After months of working with my financial advisor, I found out he was making risky investments without my knowledge. When I discovered how much money I lost, I thought there was nothing I could do. Howard explained all the difficult terms and what exactly my financial advisor did wrong. If it wasn't for Howard, I would never have recovered my losses and would be under extreme financial distress to this day. J.
★★★★★
Howard’s experience and advice throughout this ordeal was invaluable and reassuring. The law in general is complicated, difficult to understand and very personal. Financial misappropriation is even more personal but Howard’s years of experience and calm demeanor helped keep me calm, focused and moving forward. For anyone in need of a knowledgeable and experienced Investment Recovery Attorney I strongly recommend Howard. Laura
★★★★★
I was filled with anxiety and stress when I selected Attorney Howard Rosenfield to represent me. Instantaneously, I felt comfortable and at ease. Attorney Rosenfield listens attentively to the facts and asks questions and competently reiterates and verifies the accuracy and completeness of my statements. Perseverance, trustworthy and superb legal and communication skills mark Attorney Rosenfield to be one of the best in his field of law. Helen