July 19, 2024

What Is Excessive Use of Margin?

A stockbroker engaging in excessive use of margin is also engaging in misconduct, and when you lose on an investment due to buying on margin, you may be able to recover the loss

Like most types of stockbroker misconduct, excessive use of margin is a way for brokers to increase their own profits without concern for their behavior’s impact on you, your wallet, and your life. Read on to learn more about what excessive use of margin is and what you can do if you have endured a loss. 

What It Means to Purchase Securities On Margin

You can think of excessive use of margin as a loan from the brokerage firm. Just like any type of loan, when you buy on margin, your “loan” will then continue to accrue interest until you pay it off. This means that you will immediately lose funds by making on-margin purchases. 

Brokers will sometimes engage in excessive use of margin so that they can continue to purchase other securities. Now, only an advisor with control over the account can do this, so you can reduce your risk by having complete control over your own accounts.

When you buy on margin, you not only lose out on the interest you pay; the brokerage firm also holds your purchased securities as collateral, so they can then issue what’s known as a margin call and require you to pay off your loan. This can lead to a drop in value for your securities. 

What to Do if You’ve Suffered a Stock Loss

By failing to inform you of the risks associated with buying on margin—and the risks are almost always higher than the returns—or not informing you of the loan at all, your broker has set you up to sue them. You can seek repayment for your losses through a FINRA arbitration hearing. 

The Financial Industry Regulatory Authority, or FINRA, as it is more commonly known, is responsible for holding fraudulent stockbrokers and brokerage firms to account for their misconduct. You can learn more about the FINRA arbitration process by speaking with your attorney. 

Get Help with Your FINRA Arbitration Claim

To discuss the individual details of your investment loss, or if you are unsure whether you have been a victim of excessive use of margin, contact a FINRA lawyer at Meissner Associates. You can give our office a call at 212-764-3100 or complete the online contact form at the bottom of this page to schedule your free, no-obligation consultation.