You may have a chance to seek compensation if you lose over $100,000 due to misconduct by a broker, financial advisor, or investment firm involving margin trading. In this situation, you can turn to a margin trading lawyer from our team at Meyer Wilson for help.
If you experienced financial setbacks due to margin trading and your advisor did not inform you of the associated danger, you could recover your losses. An investment fraud lawyer will analyze your case and help you hold the at-fault party accountable.
At Meyer Wilson, we have over 75 years of combined legal experience advocating for investors’ rights. Call us today for a free consultation.
When Do You Need a Margin Loss Attorney?
You could have a broker fraud claim if you have lost money due to misconduct in your investment account or if your broker traded without your permission. You can seek legal assistance to hold the responsible party accountable for their actions and recover your losses.
Our legal team can:
- Determine if you qualify for compensation
- Gather evidence to establish acts of misconduct
- Answer any questions that you have
- Build a claim on your behalf
We can also explore potential options to secure compensation, starting immediately.
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How Do You Get Compensation for Misconduct Involving Margin Trading?
Generally, your attorney will need to help you seek compensation through FINRA arbitration. Most investment firms require clients to sign an agreement agreeing to arbitration as a form of dispute resolution.
Many of our clients wonder: can you sue for losses from excessive use of margin trading? Typically, you cannot file a lawsuit against the liable party.
However, we know what it takes to support you during arbitration. Keep in mind that we can only help with acts of misconduct committed by brokers, investment advisors, and financial professionals.
What Is Margin Trading?
Buying on margin is a strategy to increase purchasing power and, hopefully, investment returns. An investor borrows part of the funds needed to buy a security from their brokerage firm.
While the strategy has the potential for greater reward, it also carries increased risks, including losing more money than was initially invested. The security itself is considered collateral on the loan. As such, the firm can sell it without notifying the investor beforehand.
Brokers must inform their clients of these risks before accepting purchases. If an investor suffers losses and receives no information about the dangers associated with borrowing from a securities firm, the brokerage firm may be liable.
Margin Agreement
Suppose a financial advisor engages in trading on behalf of a client without first notifying the client that they will open a margin account. In that case, they can be held liable for any losses.
A margin agreement is a contractual arrangement between an investor and a brokerage firm that outlines the terms and conditions of trading. This agreement is a fundamental document for individuals seeking to leverage their investments. The document outlines the rules and responsibilities of borrowing funds from the broker to amplify trading positions.
Maintenance Margin Requirements
Maintenance margin requirements define the minimum amount of equity a trader must maintain in a trading account to support existing leveraged positions. It acts as a financial safety net to ensure traders have enough capital to cover potential losses. If the value of the trader’s account falls below the maintenance margin level, a margin call is triggered.
Trigging a margin call prompts the trader to inject more funds into the account or reduce the size of the leveraged positions to bring the account back to compliance. Brokerage firms set maintenance requirements.
These requirements can mitigate the risks, safeguarding the trader and the broker from excessive losses.
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Fraud and Negligence Associated With Margin Trading
Deceptive practices and failure to comply with regulations can significantly impact investors. Identifying signs of broker misconduct can be challenging because these activities often involve subtle and complex maneuvers.
Any of the following red flags could signal investment negligence or fraud:
Misrepresentation of Risks
Fraudulent practices may involve brokers downplaying or misrepresenting the risks of margin trading to attract investors. This misinformation can lead investors to take on more risk than they are aware of or comfortable with.
An investment misrepresentation and omissions lawyer can help in these situations.
Unauthorized Trading
In some instances, brokers or financial advisors may engage in unauthorized trading on behalf of clients without proper consent. This action can lead to significant economic losses for the investor.
Churning
Fraudulent brokers might engage in excessive trading (churning) to generate additional commissions without regard for the client’s best interests. This unethical practice can erode the value of the investor’s portfolio.
Front-Running
In cases of negligence or fraud, brokers might conduct trades on their behalf before executing trades for their clients, taking advantage of price movements to the detriment of the investor.
Failure to Disclose Costs
Negligence may manifest in brokers failing to fully disclose the costs of margin trading, including interest rates and fees. If you have any reason for concern, a lawyer can explain what to do if you suspect fraud.
Keep a close eye on your portfolio to detect any inconsistencies in your transactions. You can identify irregularities and take corrective measures by actively reviewing monthly statements, transaction histories, and performance metrics.
Our lawyers are nationwide leaders in investment fraud cases.
Understanding the Risks of Margin Investing
Margin investing or trading can result in substantial losses. Investors are generally drawn to this because their advisor claims that it can increase their return on the initial investment. For example, if they borrow 50% of the purchase price, they significantly increase the possible gain.
Of course, brokerage firms like this financial strategy because it allows them to earn interest on the borrowed money. However, there are some significant risks that every investor needs to know.
These risks include, but are not limited to, the following:
Leverage Risk
Trading on margin involves borrowing money (margin loan) to amplify trading positions. While this can lead to higher profits, it also increases the risk of heavy losses if the market moves unfavorably.
Market Risk
Financial markets are inherently unpredictable, and stock prices can fluctuate rapidly. Margin traders face the risk of market volatility, which can result in potential losses.
Margin Calls
If the value of the assets used as collateral for a margin trade falls below a certain level, brokers may issue a margin call, requiring the trader to deposit additional funds.
Interest Costs
Borrowing money for margin trading incurs interest costs. If the potential return on the invested capital is not higher than the interest rate, the trader may end up with a net loss.
Overtrading
The availability of leverage can tempt traders to take excessive risks and make impulsive decisions. Overtrading increases the likelihood of losses and can lead to financial ruin.
Before you agree to this investment strategy, consider your risk tolerance. If your financial advisor did not explain this to you in advance, consult an investment fraud lawyer immediately, as you might have a claim against them.
Talk to Us About Margin Trading and Misconduct
You can work with a margin trading lawyer if a financial advisor engages in misconduct with your investments. Our team can support you and help throughout the arbitration process.
Contact us today to learn more. Our team at Meyer Wilson proudly offers free and confidential consultations.
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