Margin Trading is Inappropriate for Most Investors

Stockbroker Law - Tuesday, May 10, 2011
Margin Trading is Inappropriate for Most Investors

Our law offices have handled a number of matters involving financial advisors who have convinced inexperienced and unsophisticated investors without any meaningful experience in the financial markets to engage in margin trading in their brokerage accounts.  Margin trading involves borrowing against the existing value of an investor’s account for the purpose of engaging in leveraged trading activity in stocks and mutual funds. 

 

The risks associated with margin trading include leveraged downside exposure which could wipe out the value of your account in the event of a market downturn such as that had in the recent downturn in September of 2008 through April of 2009.  Additionally, accounts traded on margin are charged interest on the borrowed funds, with brokerage firms and their brokers usually earning additional commissions due to the additional, leveraged trading activity in stocks and mutual funds.  Brokerage firms also earn sales credits on margin interest charged to your account.
 

Victims of account churning, inappropriate margin trading, and similar such securities fraud can pursue their claims through the Office of Dispute Resolution of the Financial Industry Regulatory Authority (FINRA).  If you feel you have been the victim of inappropriate margin trading, we offer a free initial consultation to discuss your possible remedies.

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