Excessive Use of Margin Lawyers


Purchasing securities on margin is a way that you can increase your investment returns. However, there are definite risks to investors who can lose money much faster.

Brokers do not always follow FINRA rules when it comes to lending to customers. If you have lost money due to your broker’s wrongful margin practices, you may be able to file a FINRA arbitration claim. Contact our excessive use of margin lawyers at Rikard & Protopapas to learn more about your legal rights after margin trading abuse.

How Trading on Margin Works for Brokerage Customers

When you open a brokerage account, your broker will ask if you want to fill out a margin agreement. Margin allows you to borrow money from the broker to purchase securities beyond the cash value of your account.

While you can make additional money by borrowing on margin, you can also lose much more money. There have been many cases in which investors’ entire account was wiped out because they were overleveraged with margined securities.

If the equity in your account falls below a certain percentage, the broker would make a margin call. You would be required to sell securities or deposit additional money in your account. The broker may take action to protect itself, selling your securities without your say in any way that they can. You can lose a considerable amount of money from forced margin sales.

The broker has considerable leeway once your account enters margin call territory. They can decide which securities to sell and how. They control the timing of the sale, and they cannot extend any deadlines for you to bring your account into compliance with margin requirements.

How Brokers Make Money When You Trade on Margin

Brokers often want you to purchase securities on margin. They could make money in several ways:

  • Brokers charge you interest to borrow money.
  • You may pay commissions on the margined trades.
  • The broker may sell your order flow to market makers.
  • The broker could fill your order from their own inventory at a markup.

The more that you trade, and the higher your amount of activity, the more money your broker may make. They often put their own interests ahead of yours when you trade on margin.

How Brokers May Violate FINRA Rules When You Trade on Margin

Brokers may commit misconduct when you are using margin in your account. First, they may not disclose the full risks to you, or they may downplay the risk.

FINRA Rule 2264 requires that the broker provide you with a margin disclosure statement if you are going to purchase securities on margin. This statement outlines what the broker may be able to do if your account falls below equity requirements. Even though a broker has the right to take certain measures, they still owe you certain obligations as their customer.

Brokers may also encourage you to trade on margin when it may not be advantageous for you. Brokers must uphold their overall suitability obligations when recommending a trade. Not only does suitability apply on an individual security basis, but a trade must also be appropriate for an investor’s risk tolerance and investment aims.

Your broker could be liable in an arbitration claim if they wrongfully recommended that you trade on margin.

Brokers Still Owe You Obligations When You Trade on Margin

While the margin disclosure statement tells you that the broker has wide latitude to make margin sales, and can even sell securities without notice to you, they also have their own obligations for how they handle your margin account. If your broker wrongfully issues a margin call or oversells securities through a disadvantageous trade execution, they could also be liable for margin trading abuse.

If you believe that you have experienced excessive losses because of margin trading, and your broker may be to blame, you could be eligible for financial compensation. You may be able to file an arbitration claim against the broker. The arbitrator may award you compensation if the broker violated FINRA rules.

Contact Our Excessive Use of Margin Lawyers Today

Our team of securities fraud lawyers at Rikard & Protopapas will fight for you when you have been the victim of broker misconduct. We have helped numerous clients recover compensation in the FINRA arbitration process. We are deeply knowledgeable when it comes to FINRA rules and holding brokers accountable.

You can schedule a free consultation to speak with one of our attorneys by calling us today at (803)-805-7546 or contacting us through our website. You owe us nothing unless we help you obtain a financial recovery.



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