Understand the Risks Before Margin Trading

More and more investors appear to be investing on margin and FINRA (Financial Industry Regulatory Authority) is concerned that many are not aware of the risks inherent in margin trading.

Many brokerage firms present the investor with standard account opening documents, where the investor must affirmatively decline margin privileges. As an investor, it is so important that you understand the risks of margin trading before opening a margin account and trading on margin. If you do not, you may find yourself facing the loss of your investments, along with a debt to the broker that exceeds the money in your margin account.

FINRA correctly recommends that you keep in mind and understand the following risk factors before trading on margin.

1.  Your brokerage firm can force the sale of securities in your accounts to meet a margin call.

2.  Your brokerage firm can sell your securities without contacting you.

3.  You are not entitled to choose which securities or other assets in your accounts are sold.

4.  Your brokerage firm can increase its margin requirements at any time and is not required to provide you with advance notice.

5.  You are not entitled to an extension of time on a margin call.

6.  You can lose more money than you deposit in a margin account.

For more detailed information on margin trading and the risks you may face, please read Investing with Borrowed Funds: No “Margin” for Error from FINRA.

To learn more about Janet DeCosta, visit her site www.jkdecosta.com.