A margin account is a brokerage account in which the broker-dealer or securities firm loans money to its customer to buy investments. The securities firm generally holds the investments (and other assets) as collateral for the loan. Margin accounts give investors “leverage” (additional, borrowed funds) to buy more investments than they otherwise could, using the firm’s money. The investor is charged interest on the borrowed funds. In addition, if the value of the collateral (the investments bought on margin) declines, the investor will receive a “margin call” requiring the customer to deposit additional collateral (cash or other investments) or sell the investments bought with the borrowed funds, often at a loss.
Thus, buying investments on margin creates additional risk because, if the value of the investments declines, the leverage will work against the investor. In this event, the investor will end up taking a loss on the investment and owing the firm the amounts borrowed on margin, plus interest. These amounts can often be several times more than the investor’s starting capital. By the same token, if the investment increases in value, the margin account will have enabled the investor to reap greater gains due to having more capital to buy more of the investment. So long as the gains are greater than the margin interest, the investor is ahead. Thus, margin accounts increase risk and can magnify both gains and losses.
The investment and securities fraud attorneys at Moulton, Wilson & Arney, LLP have extensive experience representing individual investors in securities arbitration and litigation. Cindy Moulton, Michael Wilson and Lance Arney have successfully represented thousands of clients in securities and investment fraud cases, with combined claims of hundreds of millions of dollars.
If you have suffered an investment loss in a Margin Account, you may be entitled to recover all or part of your investment.