West Palm Beach Securities Litigation Attorneys Help Investors Harmed by Margin Calls
Margin accounts provide a means for investors to put more money to work, but they certainly are not for everybody. A responsible broker will not put a customer into a margin account without fully explaining how margin accounts work, including the risks involved. If you borrowed money on margin and were later forced to sell your stocks at a loss, you may have a claim against the broker or brokerage firm for putting you in a situation you did not fully understand, so they could make money at your expense. The securities litigation attorneys at McCabe Rabin in West Palm Beach help people recover compensation when they have been harmed by unscrupulous broker conduct. Read on to learn more about margin accounts, and contact our office if you believe you may have a margin claim.
What is a Margin Account?
Put most simply, a margin account allows the investor to borrow money from the brokerage firm in order to buy securities. While this may be a good strategy for sophisticated investors who can put more money to work for their investments, it can be extremely dangerous for the average investor who relies on the broker for advice.
What the average investor may not know is that a margin account gives the brokerage firm the power to make a margin call when the stock you invested in goes down in value. A margin call will require you to either deposit more cash to make up for the loss or sell your stock. Many times investors will not have more cash to deposit and are forced to sell the stock. Of course, if you sell your stock, you do so at a loss because the stock has declined in value. The sale negatively affects your portfolio but does not hurt the brokerage. The broker may even make a commission off of the sale!
In certain circumstances, brokerages even have the power to order a margin liquidation, which can wipe out your entire account. Obviously, margin accounts are not for everybody; only experienced and sophisticated investors with a high risk tolerance should enter such an agreement knowing the risks involved. Unfortunately, unscrupulous brokers may take advantage of an investor’s willingness to invest and place the investor in a margin account when they do not fully understand what that placement entails.
You Buy the Stocks, but the Brokerage Calls the Shots
Imagine if the bank holding a mortgage on your house could force you to pay the more money or sell your home if its value declined. When you own a home, mortgaged or not, you have the power to decide whether and when to sell your home, regardless of its change in value. The same holds true for most stocks and investments, but not for margin accounts. If your broker put you into a margin account without adequately explaining what that means, you may have a claim for financial losses caused by a margin call or margin liquidation.
Call West Palm Beach’s Trusted Securities Fraud Lawyers
If you believe you have been harmed by your broker or firm with respect to your margin account, please call the Florida securities litigation attorneys at McCabe Rabin in West Palm Beach at 561-659-7878, toll free at 877-915-4040, or contact us online to schedule a consultation with a team trusted Florida securities fraud lawyers.