Recently FINRA issued an alert to investors regarding the purchase of securities "on margin." There was a 27% increase in trading on margin over the first nine months of 2013, which averaged to more than $406 billion. FINRA is concerned that investors are underestimating the risks of trading on margin. When the investors cannot satisfy margin calls, it can cause a large portion of their accounts to be liquidated creating substantial losses for investors.
FINRA reminds investors before opening an account on margin to consider the following:
•You are not entitled to an extension of time on a margin call
•You can lose more money than you deposit in a margin account
•You are not entitled to choose which securities or other assets in your accounts are sold
•Your firm can force the sale of securities in your accounts to meet a margin call
•Your firm can sell your securities without contacting you
•Your firm can increase its margin requirements at any time and is not required to provide you with advance notice
FINRA issued a 'caution' that reminds investors that buying on margin is comparable to getting a loan from your firm. The investor must repay both the amount you borrowed and interest--even if you lose all of your money on your investment. There are some brokerages who automatically open margin accounts for their investors. Choose a cash account if you don't want to trade on margin.
Soreide Law Group has handled dozens of cases involving the improper use of margin successfully for clients nationwide before FINRA. Call Soreide Law Group for a free consultation with an attorney at: 888-760-6552.
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