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The Risks of Investing on Margin

Investing on margin is a very difficult and risky investment to make unless you are a seasoned investor. Oftentimes, there are investors who are just starting or have very little experience in investments who are talked into investing on margin. This often means they don’t have the money to take the risk and this investment can result in large, significant losses. Unfortunately, investing on margin can leave you with an empty portfolio.

By investing on margin, you are essentially taking out a loan with your brokerage firm. This allows you to have more money in your account for buying stocks, but it comes with some interest rates and regulations of which to be aware. It is important for you to understand a few things regarding investing on margins.

  • Margin interest
  • Initial margin requirement
  • Maintenance margin requirement

The maintenance margin requirement is usually the issue that causes investors to lose money. This states that your account must maintain 25% of the current market value of the securities in the account. Should your account go below the minimum requirement, you may face a margin call. The result of a margin call is you either putting more funds in the account or having to sell some of your stocks in order to pay back the amount you borrowed. This means you can lose more money than you initially had plans to invest.

At Meyer Wilson, our securities lawyers believe that if you do not have significant funds in order to invest on margin, this is something you should avoid. If a broker advises you to invest on margin while knowing that you do not have the money necessary to do so without concern, this may warrant legal action. We aim to help you recover your losses if you lost money due to investing on margin as a result of bad advice from a broker or brokerage firm. Call for your free case evaluation and discuss how we can help you.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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