margin call in your brokerage account

Has the Stock Market Crash Forced a Margin Call in Your Brokerage Account?

Mar 30, 2020

When the stock market quickly moves down, as it has been doing during the coronavirus market crash, you may find yourself in a situation where your stocks are sold to pay back a loan that a brokerage firm made to you. This is called a “margin call.” A margin loan is a loan that the brokerage firm makes to you that is secured by the investments in your account. Some people do not even know that they have a margin in their brokerage account, and only first become aware of this fact when they are forced to pay a margin call or maintenance call. Many new account documents which you are asked to sign when you open a brokerage account allow for the securities firm to make a margin loan to you for the purchase of securities in your account. Therefore, you should review your brokerage account statements carefully to determine if you have a margin debit or a margin loan in your account. The Securities and Exchange Commission has published an investor bulletin explaining to investors how margin accounts work.  The Difference Between Cash and Margin Accounts A “cash account” is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account.   In contrast, a “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Margin increases investors’ purchasing power but also exposes investors to the potential for larger losses.   You Should Understand How Margin Works Margin loans are a tool that allows customers to leverage their accounts to make a greater return. Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment (your $25 gain is 50% of your initial investment of $50). But if you bought the stock on margin – paying $25 in cash and borrowing $25 from your broker – you’ll earn a 100 percent return on the money you invested (your $25 gain is 100% of your initial investment of $25). You may also owe your broker interest on the $25 you borrowed. There is a downside to using margin, which is riskier that a cash account. If the stock price decreases, you can quickly lose your money. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money (your $25 loss is 50% of your initial investment of $50). But if you bought on margin, you’ll lose 100 percent (your $25 loss is 100% of your initial investment of $25), and you still must come up with the interest you owe on the loan. Many investors cannot afford to takes this type of gamble with their funds. Your […]

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coronavirus pandemic

What If I Can Not Reach My Broker During The Coronavirus Pandemic?

Mar 23, 2020

The recent events of the coronavirus pandemic have caused a great dislocation of office workers and many securities professionals have been ordered to shelter in place or remain at home. What if you are trying to reach your broker regarding your account? With the stock market in turmoil, how does this affect you as a brokerage customer? During an emergency or pandemic, each broker-dealer is required to notify its customers as to how they may contact their financial advisor, broker or the brokerage firm. There are business continuity rules in place during a pandemic requiring securities firms to protect their customers. Under special guidance put in place during the COVID-19 pandemic, your brokerage firm is required to put a notice on its website indicating to all of it affected customers who they may contact concerning the 1) execution of trades; 2) their accounts; and 3) access to funds or securities in their accounts.  The Financial Industry Regulatory Authority (“FINRA”) requires that each member securities firm have a Business Continuity Plan (“BCP”) which sets forth how the firm can be contacted by its customers during an emergency like the coronavirus pandemic. FINRA’s recent regulatory guidance, for communicating with customers during the pandemic states: Communicating With Customers FINRA understands that member firms may experience significantly increased customer call volumes or online account usage during a pandemic (e.g., due to significant market movements), which may cause temporary operational challenges. Member firms are encouraged to review their BCPs regarding communicating with customers and ensuring customer access to funds and securities during a significant business disruption.     If registered representatives are unavailable to service their customers, member firms are encouraged to promptly place a notice on their websites indicating to affected customers who they may contact concerning the execution of trades, their accounts, and access to funds or securities. Supervisory control policies and procedures should be considered that will mitigate risks that may arise due to the reduced ability to communicate with customers, inability to rely on the mail or other disruption to the existing controls over communications with customers.  Under this regulatory guidance, brokerage firms are required to tell their customers who they may contact if they want to execute trades (such as buy or sell orders) or to discuss their accounts or access funds or their investments. Additionally, brokerage firm management is required to take steps to ensure that risks are reduced with respect to any inability to communicate.  These rules were developed after a series of disasters and emergencies to make sure that you as a customer are able to access your broker, your securities account and your funds. A History of Disasters Led to the Development of Special Emergency Rules  In the aftermath of 9/11, FINRA implemented rules requiring member firms to have a business continuity plan (“BCP”). This Rule requires members to establish emergency preparedness plans and procedures including a BCP. Importantly, each broker-dealer member must disclose to its customers how its BCP addresses the possibility of a future significant business disruption. This rule was in place during Hurricanes Rita and Katrina and the BCP guidelines were tested based upon real-life […]

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Investment loss

Can I Sue My Financial Advisor for Investment Losses?

Mar 16, 2020

We are currently in a phase of massive market fluctuation. As is clear now, if it was not apparent before, the market is highly sensitive to world affairs, political changes, and global crises. The collective emotions surrounding the current worldwide Coronavirus pandemic, and the response from government and international agencies around the world, is certainly being reflected in the financial markets. That is, of course, the risk you take when investing your money in the market. However, remember that you are taking a calculated risk.   Expected Market Risk vs. Unexpected Fraud or Mismanagement by a Financial Advisor You know, as all investors know on some level, that the long-term financial returns of investing in the market typically outweigh any short-term losses. But there is always some risk involved. That is why it is good practice to invest regularly, try to have your financial advisor balance your portfolio so you can hedge some of your bets against economic downturn, and try to manage your stress and concern during major market volatility of the kind that we are currently experiencing due to the Coronavirus.  All that being said, the kind of risk we do not account for is when your financial advisor does something that is not in your best interest, and/or when your broker or advisor puts their interests above yours. That is not the ordinary, to-be-expected, kind of investment risk. Rather, that is a wrongful act on the part of your broker or financial advisor for which you can obtain damages through a lawsuit or arbitration.   So, the short answer to the question, “Can I sue my financial advisor for investment losses?” is “Yes.” In this article, we will discuss the reasons for suing your broker or financial advisor, and the mechanics of how to get your “day in court” when you are the victim of investment fraud, negligence or  mismanagement.   If, after reading this article, you have additional questions on any investment fraud matters, we invite you to contact investment loss attorney Melanie Cherdack. Ms. Cherdack is an investment loss attorney who understands the plight of those who were victims of investment fraud. She has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients.   To learn more about whether you need an investment loss attorney for your current situation, then we invite you to contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud lawyers who are leveling the playing field for you.     There Are a Number of Reasons That Will Support Legal Action Against Your Financial Advisor Losing money due to market fluctuation is, simply put, the risk of investing. Losing money due to wrongful conduct on behalf of your financial advisor, however, may provide grounds to take legal action against him or her. Here are some common reasons why an investor will take legal action against a financial advisor or broker. 1. Outright Fraud. Selling fake securities or products; or not using your money to buy securities at all. 2. Broker Negligence. Investing your money in a way that is not suitable […]

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