You are in the market to make money and increase your overall returns. The challenge is that your funds are limited, and you can’t buy as many shares to take advantage of new opportunities.
Margin gives us leverage to buy more stock and increase returns. It is a loan from the brokerage firm to you to purchase additional shares of stock and engage in speculative activities such as shorting. When everything is going right, this seems like an excellent way to make more money.
You are using someone else’s money and realizing greater returns. Then, one day the value of your portfolio is falling. No one knows if the markets are in a correction or if this is the beginning of something more. This is when you receive a phone call from your broker informing you of a margin call.
A margin call is when you must add money to the account to bring its equity back up to a certain level after a decline in value. You must pay the call immediately or the brokerage firm will sell out your position to cover the loan. The only choices you have are to pay the margin call or lose everything you have in the position.
Situations like this are not uncommon with the volatility we are seeing in the markets. When everything was strong, this made sense and seemed like a good idea. You did not know that it was a loan, or you could lose everything in the principal.
Did your broker recommend you invest on margin? Did you suffer losses as a result of your broker’s suggestion? A margin loss attorney from Wolper Law Firm, P.A. dedicated to margin loss could help you get your money back. Call us today at 954.406.1231 or (toll free) 800.931.8452
Why Choose a Margin Loss Lawyer at Wolper Law Firm, P.A.?
Anytime you are going up against a financial professional is when you need a skilled margin loss attorney. We have decades of experience working in securities and trial law. This means that we understand what happened, can apply the proper legal framework, and show where the wrongdoing occurred.
If you have lost from the excessive use of margin, attorneys at Wolper Law Firm, P.A. can help you. Our firm levels the playing field for investors like you. Anytime you are taking on the Wall Street firms, they try to use their power, money, and influence to hide the truth.
We prevent this from happening and will take aggressive action to ensure that they honor their legal obligations to you. You will work with an excessive margin attorney that is knowledgeable, experienced, and dedicated.
We have a 99% success rate and five-star reviews. Contact us now at 954.406.1231 or (toll free) 800.931.8452 and schedule your free consultation.
How We Can Help
Our team uses our experience to understand what is happening and apply the law to your situation. Our strategy is effective and will get results. You don’t have to worry about what happened with your investments because we will get to the bottom of it.
Our 99% success rate speaks for itself. Contact the Wolper Law Firm, P.A. now at 954.406.1231 or (toll free) 800.931.8452 to schedule your free consultation.
What Are Margin Losses?
When you buy stock on margin, you’re essentially buying stock using a loan from your brokerage firm. Margin losses occur when the value of an investor’s stock diminishes and the financial institution issues what’s called a margin call.
When the brokerage firm issues a margin call, investors only have a limited amount of time to either make a deposit or take action to increase the value of the stock. If the investor is unable to do so, the broker-dealer can then sell the stock in order to recover the lost value. This sometimes results in catastrophic losses for investors.
Since margin calls can happen with fluctuations in financial markets, you might be wondering why someone would take the risk of buying on margin. Investors will often buy on margin in order to purchase more stock than they would normally be able to. As you can imagine, this is not always a suitable investment strategy.
If your broker suggested that you purchase stock on margin and you suffered considerable losses on a margin call, you may be entitled to full restitution. Your lawyer can help you figure out whether you have grounds for a FINRA arbitration complaint.
Times like these are when you need to call the margin loss attorney at the Wolper Law Firm, P.A.. We offer a free consultation to discuss what happened with a margin loss lawyer. You are under no obligation and we will help you explore your options.
We have a 99% success rate for our clients. Contact us now at 954.406.1231 or (toll free) 800.931.8452 and schedule your free consultation with a skilled attorney.
What Are Margin Calls?
Margin calls are issued by financial institutions when the value of a person’s stock diminishes in value. This can happen due to simple fluctuations in the stock market or because of more serious events, as was the case with the COVID-19 global pandemic.
When a margin call is issued, investors will have to take action to raise the value of their financial instruments, usually by making a deposit to the account. If the investor is unable to do so, the brokerage firm can then sell the investor’s stock in order to make up the difference.
Although purchasing on margin has its benefits, it is not a suitable recommendation for every investor. If your broker failed to inform you of the risks of purchasing on margin, misled you, or is otherwise responsible for your losses, they could be compelled to repay you by a panel of FINRA arbitrators.
Margin is One of the Riskiest Forms of Investing
Margin trading is one of the riskiest forms of investing. It is like cancer that eats away at the entire value of the portfolio when there are declines. You have a limited amount of time to bring the balance back up by depositing cash or will be involuntarily sold out. You can lose everything you have in the position and see significant losses in your portfolio.
The Financial Industry Regulatory Authority (FINRA) oversees the financial industry. It requires that the brokerage firm and your financial professional must show that you were informed of the risks of margin trading. Here are some of the things your broker or advisor must disclose to you before you complete all of the margin paperwork and start trading
- Risks: Your financial professionals must tell you about the risks of trading on margin including the loss of principal.
- Margin call: Anytime you are trading on margin, expect margin calls. No one is perfect, and there are times the positions you buy will go down. When this happens, you must be liquid enough and ready to cover the margin call. Your financial professional should explain what a margin call is, its maintenance requirements, and the regulations the brokerage firm has to follow.
- Interest: Margin is a loan, and this means the brokerage firm is charging you interest. Your financial professional must go over these interest rates with you.
All of these must be explained to you before completing and submitting the margin paperwork.
The brokerage firm has additional requirements that it must follow to show you are informed of everything including the following:
- Not becoming over-extended: The brokerage firm must ensure that you have the means to cover the margin calls. If your situation changes, they must look at how it can affect your liquidity position and the ability to meet any margin requirements.
- Communication: Your financial professional should communicate with you regularly about what is happening with the account. They should give you as much notice as possible during those times when there are declines and how this can trigger a margin call.
- Using liquidation as a last resort: Liquidating the position must be used as a last resort. You must be given the chance to cover the margin call within the designated time.
All of these guidelines are necessary to prevent losses and to let you know what is involved with margin.
The Wolper Law Firm, P.A. is the margin call attorney that gets results. You work with a lawyer that is knowledgeable, experienced, and professional. We create a customized legal strategy to go after the brokerage firm and your financial professional.
The firm and the broker/advisor must inform you of these risks and to let you know when the situation has changed. Contact a margin loss attorney at Wolper Law Firm, P.A. today at 954.406.1231 or (toll free) 800.931.8452 and schedule your free consultation.
Recovering Losses Caused by Margin Calls
One of the most common ways that wronged investors seek to recover their losses is by filing a FINRA arbitration complaint. This is similar to litigation in process, but there are many differences.
You will start by filing your complaint. If FINRA agrees to hear your case, you will have a chance to plead your case and have your irresponsible broker explain their reasoning for suggesting that you invest on margin. The arbitrators will then carefully review the evidence and determine if negligence or misconduct occurred and whether you should be awarded restitution.
If the arbitrators come down in your favor, they can then order the liable party to repay you within thirty days of the decision. What’s more, many FINRA arbitration claims can be resolved in as little as eighteen months.
FINRA Arbitration for Margin Loss
FINRA arbitration is one of the best options for investors who hope to recover margin losses. Here, a panel of arbitrators will hear your case and listen to your broker defend their decisions before determining whether you should be paid restitution.
Arbitration is similar to what court would be like—with some key differences. Some of the reasons why arbitration is often favored over court proceedings include:
- The length of the claims process
- The ability to appeal
- The amount of time to repay the victim
- Arbitrators, as opposed to a judge/jury.
Risks of Using Margin
While using margin carries the potential to enhance an investor’s return, it also magnifies the risk in the account. If the securities that collateralize the margin loan decline in value, the investor may experience a margin or maintenance call from the brokerage.
In the event of a margin or maintenance call, the investor must either deposit additional assets into the account or liquidate securities to reduce or altogether eliminate the margin balance. If remedial action is not taken by the client to meet the call, the brokerage will often involuntarily liquidate securities in the client’s account to meet the margin call.
An example of trading and investing using margin is the following: You want to purchase $100,000 worth of stock but you only have $50,000 in your brokerage account. The brokerage will loan you the extra $50,000 and charge you interest on the loan. The loan is secured by the stock that is in the account. If the price of the stock increases, the investor has the potential to make more money that they otherwise would have made if the investment was limited to $50,000. However, if the price of the stock decreases, the investor may lose their $50,000 and still owe the brokerage the borrowed funds, thus magnifying the losses.
Duty of Brokerage Firms and Financial Advisors
Financial advisors owe several duties to a client before they can recommend the use of margin. The failure of a Financial Advisor to fulfill these duties will subject the brokerage firm to liability. Among the duties include the following:
- To discuss with the client the risks associated with the use of margin, including the risk of principal loss beyond the value of the account
- To discuss with the client whether they have the financial ability to absorb a complete loss of principal in the account
- To discuss with the client the nature and type of collateral supporting the margin loan and how it may impact the risk characteristics of the margin loan
- To discuss with the client the rate of interest charged by the brokerage firm for the borrowed funds
- To discuss with the client the margin limits and maintenance requirements imposed by law and the brokerage firm
- To discuss with the client their obligations in the event there is a margin call.
In addition, to the extent a margin loan is extended, the brokerage has further duties:
- To ensure that the margin maintenance requirements are met, and that the client does not become over-extended
- To ensure that clients are kept informed regarding margin calls and given an opportunity to deposit additional collateral to meet a call instead of the involuntary liquidation of securities by the brokerage
- If liquidation becomes necessary, to do so in an orderly way that puts the client’s interests first.
FAQs to ask a Margin Loss Attorney
If you experienced losses due to margin, you might have many questions. Our margin loss attorney answers some frequently asked questions regarding margin and margin loss.
We offer a free initial consultation. You are not under any obligation and can discuss your case openly. You speak with a skilled attorney that will go over the different options.
Margin is a loan to buy stocks, bonds, mutual funds, and options. It increases the number of shares, bonds, or contracts you can purchase. You have more buying power and leverage to increase your profits.
A margin call is when the value of the account declines to a point that you have to add additional cash to increase the equity. Failing to meet the call allows the brokerage firm to sell out your position and pay off the loan.
The biggest risk is you can lose everything you invested in the position. This occurs when you have a margin call and don’t pay it. The brokerage firm sells out the entire position and you lose your principal.
Contact our margin loss lawyers at Wolper Law Firm, P.A. at 954.406.1231 or (toll free) 800.931.8452 if you have any additional questions.
Meet with a Lawyer about Your Margin Losses
If you purchased stock on margin and suffered devastating losses, you may be entitled to restitution. Contact a respected margin loss lawyer at Wolper Law Firm, P.A. to discuss the circumstances of your case. We provide complimentary consultations to wronged investors across the U.S. Take advantage of this opportunity when you call 954.406.1231 or (toll free) 800.931.8452 or complete the online contact form provided below.
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