Inappropriate Margin Trading Advice Attorneys Based in New York
When you work with a broker to engage in margin trading, you put full trust in your broker and follow the advice that they give you. Brokers are expected to advise their clients on the risk of margin trading, and to ensure that their clients understand what is going on. However, this is not always the case. Sometimes, brokers give inappropriate margin trading advice, and this can lead to many negative consequences for their clients. If they are found to have given their client inappropriate investment advice, they can be held responsible for these mistakes.
Contact Weltz Law at (877) 905-7671 to discuss your margin trading advice issue.
Margin Trading Explained
Margin trading refers to the process of investors buying more stocks than they can afford to. Usually, they pay a portion of the price and get a loan to pay for the balance. The broker in charge of setting up the loan also creates a margin account. This account can be used to pay for the loan and its interests. Usually, firms choose to loan clients’ money so that they are more willing to buy more securities from the firm. This benefits the firm as it receives commissions and interest. Although this seems like a fast way to get more money, there is a certain level of risk that the broker is responsible for informing the investor.
Obligations of Margin Trading
Many types of trading involve risk, and this is no different with margin trading. To put it simply, when the investor purchases more, underlying debt will also increase. Thus, this increases the risk that the investor faces, also known as an increase in “downside risk”. Brokers are expected to inform investors about the risks involved in margin trading and the obligations involved.
Some of them include:
- The central obligation in margin trading is to pay back the principle amount borrowed and the interest due.
- The balance and interest due are paid by the margin account.
- The brokerage firm and the brokers are paid several times. For the original purchase, they are paid a commission. They then get paid once more for the amount borrowed and the interest incurred. They will likely get another commission if the stock is sold.
- A margin call can be made by the brokerage firm to force the sale of a customer’s securities. This is to pay a portion or the entire balance due, and this can happen without notice.
- There is a chance that the investor ends up losing the collateral. This means they will be in debt to the brokerage firm.
- If a margin call is made, investors may not be in the position to request for more time.
- When a margin call is made, the brokerage firm gets to decide which assets in the account are used to pay the brokerage firm. This decision is not made by the investor.
- It is possible for the brokerage firm to charge a fee. This fee is for maintaining the margin account, and fees can be increased any time.
Stockbrokers are expected to tell investors the risks involved with margin trading and to review with them whether it is an appropriate investment strategy for them. Investors who do not understand margin trading should be advised that such trading is not suitable for them. If the broker gives inappropriate margin trading advice to the investor, the investor can take legal action against the broker.
Meet With a New York Attorney to Discuss Your Inappropriate Margin Trading Advice Case. We Represent Clients Nationwide.
If you believe you are a victim of inappropriate margin trading advice, you should contact a securities litigation attorney to discuss your next course of action. For over 25 years, attorneys at Weltz Law have been assisting different clients and filing claims.
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