Investing with Borrowed Funds: No "Margin" for Error
With investor purchases of securities "on margin" averaging more than $406 billion for the first nine months of 2013 (a 27 percent increase over the same period last year), we are re-issuing this alert because we are concerned that many investors may underestimate the risks of trading on margin and misunderstand the operation and reason for margin calls. Investors who cannot satisfy margin calls can have large portions of their accounts liquidated under unfavorable market conditions. These liquidations can create substantial losses for investors.
Before you decide to open a margin account, make sure you understand the following risks:
With investor purchases of securities "on margin" averaging more than $406 billion for the first nine months of 2013 (a 27 percent increase over the same period last year), we are re-issuing this alert because we are concerned that many investors may underestimate the risks of trading on margin and misunderstand the operation and reason for margin calls. Investors who cannot satisfy margin calls can have large portions of their accounts liquidated under unfavorable market conditions. These liquidations can create substantial losses for investors.
Before you decide to open a margin account, make sure you understand the following risks:
- Your firm can force the sale of securities in your accounts to meet a margin call
- Your firm can sell your securities without contacting you
- You are not entitled to choose which securities or other assets in your accounts are sold
- Your firm can increase its margin requirements at any time and is not required to provide you with advance notice
- You are not entitled to an extension of time on a margin call
- You can lose more money than you deposit in a margin account