Buying on Margin is Gambling with Borrowed Money
A “margin account” is an account offered by brokerage firms that allows investors to borrow money to buy securities. An investor might put down 50% of the value of a purchase and borrow the rest from the brokerage firm. The brokerage firm charges the investor interest for the right to borrow money and uses the securities as collateral.
Have You Lost Money Buying on Margin? Recover Your Losses!
The most important thing to understand about margin is that buying on margin is essentially gambling with borrowed money. It is risky because the customer must repay the amount borrowed with interest, even if the securities purchased on margin lose value. As such, the customer can lose more than the amount deposited into the margin account. Using margin is a high risk method of investing and is only appropriate for sophisticated investors. Despite these risks, some brokerage firms automatically open margin accounts for investors.
Claims for the inappropriate use of margin often occur where a substantial portion of the client’s investable assets were traded on margin, the broker failed to disclose or adequately explain the risks of margin trading, and the risks made the use of margin unsuitable given the client’s investment objectives, risk tolerance and time horizon.