Excessive Unsuitable Margin Trading
Margin trading has three financial trap doors: first there is the risk involved in the transaction, purchasing long or short on margin. Secondly there is a risk that the pledged security may be devalued by normal market trading in that security, thirdly margin trading means paying interest. Margin trading is best left to experienced traders and is not appropriate for medium to low risk investors. Any stockbroker, financial advisor or investment counselor, who introduces margin trading to their clients, invites a charge of unsuitable or excessive margin trading. Financial advisors have the fiduciary duty to investigate and determine both the risk tolerance of the client and the risk inherent in any margin transaction. In the dozen perhaps hundred stock brokerage firms with offices in South Florida, Fort Lauderdale, and Boca Raton, very few trade using margin programs for their clients. Margin trading is rarely an appropriate trading technique for those individuals who look to their stockbroker for income and capital preservation. Often you don't have to claim excessive margin trading in a stockbroker fraud claim. Even a small or limited margin trade for a conservative, low risk client can be unsuitable. Remember, you are pledging your securities, paying interest to the brokerage firm and then taking a position on another stock. You are now a borrower from your brokerage firm, which also raises additional fiduciary questions. Margin trading an account for low risk retiree is in itself a questionable transaction and may cross the line into stockbroker liability. If you can't take the risk of short trading then you shouldn't be in a margin trading situation where you are in fact shorting with your own pledged stocks. Margin calls invite volatility and can destabilize any investment plan. A stockbroker who puts an investor in a margin posture must be able to prove the sophistication level of the investor and their comfort level with the risk. When your stockbroker fraud lawyer begins arbitrating a claim for stockbroker fraud involving margin transactions, you often need go no farther than claim the margin transaction itself was an unsuitable and inappropriate transaction. Margin trading can be an effective tool for investors who are comfortable with leverage and understand the risks. This is not common for the usual retail investor such as we see here in South Florida, Boca Raton and Fort Lauderdale. Many investors don't fully understand what margin investment entails as to risk. Many times stockbrokers can underestimate or under appreciate the scope and magnitude of the risk they are placing their client’s assets. If you don't fully understand the risks involved in margin trading then any margin trading, whether it be excessive or not, may be unsuitable for you. Your securities fraud attorney can explain how the arbitration process can present your claim for excessive margin and unsuitable margin trading and may make it possible for you to recover lost assets.