A margin blowout is what occurs when you fail to meet a margin call, prompting your broker to forcibly liquidate your positions. This can lead to significant financial losses and typically follows a sudden, severe drop in the value of a leveraged investment portfolio.
A margin blowout is one of the reasons buying on margin is so risky and better left to highly experienced investors. In some cases, the actions of your investment professional can put you in a position where you experience a margin blowout.
If you have lost money due to the misconduct of an investment professional, a nationwide securities lawyer may be able to help.
What Is a Leveraged Investment Portfolio?
A leveraged investment account allows you to buy on margin, meaning you borrow money from your broker to purchase more securities than you could with just your own funds. Buying on margin creates leverage, which can increase gains if your investments rise.
It also creates a situation that magnifies losses if your investments fall. If the value of your portfolio drops too much, your broker may issue a margin call, requiring you to add funds or sell assets.
We Have Recovered Over
$350 Million for Our Clients Nationwide.
What’s the Difference Between a Margin Call and a Margin Blowout?
A margin call is a broker’s request that you add more funds or sell assets to restore your margin account to the required maintenance level. It indicates that your investments have fallen in value enough for your equity to be too low to support the borrowed funds.
A margin blowout is a more severe consequence that occurs when you fail to meet the margin call. In this situation, the broker forcibly liquidates your positions, often at unfavorable prices.
What Triggers a Margin Call?
A margin call happens when the equity in your margin account drops below the broker’s required maintenance margin. This often occurs when the market value of your securities drops sharply and reduces the buffer between your borrowed funds and the value of your investments.
Your broker monitors your account, and if your equity drops too low, they issue a margin call asking you to deposit more money or sell some assets. Volatile markets, unexpected news, or sharp declines in specific sectors can all trigger a margin call.
Our lawyers are nationwide leaders in investment fraud cases.
What Causes a Margin Blowout?
A margin blowout can happen if your leveraged portfolio experiences rapid and steep losses and triggers a margin call that you cannot meet. As a result, your firm liquidates your positions to cover your losses, often in a declining market.
This forced selling can worsen your losses, especially if asset prices continue to fall during the liquidation process. Margin blowouts are often caused by over-leveraging, high market volatility, poor risk management, or abrupt changes in market sentiment.
We Are The firm other lawyers
call for support.
Can I Lose More Than I Invested During a Margin Blowout?
Yes, during a margin blowout, you can lose more than your initial investment. When you trade on margin, you’re borrowing funds, which means you’re responsible for paying back that debt no matter how your investments perform.
If your portfolio’s value drops sharply and your broker liquidates your positions at a loss, the proceeds might not cover what you owe. In such cases, you are legally required to pay the remaining balance. This is one of the biggest risks of margin trading.
How Do I Know if I’m at Risk of a Margin Blowout?
You’re at risk of a margin blowout if your portfolio is highly leveraged, especially in a volatile market. Warning signs include declining asset values, shrinking account equity, and frequent or nearly triggering margin calls.
Ignoring these signals or assuming the market will rebound quickly can raise your chances of experiencing a blowout. If you’ve used margin to buy risky or concentrated positions and those positions start losing value, your risk increases significantly.
What Happens if I Can’t Meet a Margin Call?
If you can’t meet a margin call by adding cash or selling assets voluntarily, your brokerage will step in and liquidate your positions to restore the required margin level. This liquidation happens automatically and often without notice.
The broker will sell your holdings at current market prices, which may be lower than your original purchase price, potentially locking in large losses. If the proceeds from the sale don’t fully cover your margin loan, you’re still responsible for paying the remaining balance.
Can Investment Advisor Misconduct Cause a Margin Blowout?
A margin blowout is sometimes caused by investment advisor misconduct. This may happen if an advisor takes excessive risks, overuses margin without your consent, or fails to monitor and manage leveraged positions responsibly.
If you’ve incurred financial losses of over $100,000 because of broker or financial adviser misconduct, it can be hard to know what to do next. Meyer Wilson Werning may be able to help. Our team has recovered more than $350 million for our clients over 25 years in business.
Call today and schedule a free consultation to tell us what happened.
Recovering Losses Caused by Investment Misconduct.