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Blowing up a margin account
- Thread starter horowitzvlad
- Start date
Quote from horowitzvlad:
Question about liability and margin.
If I have 10k in my account and short 2000 shares at 5 dollars, what happens if, the next day, the stock opens at 20? Obviously, I lose my 10k, but is the broken completely liable for the 30k remainder? Can they sue a customer or respond similarly?
STOP STOP AGAIN STOP reading TIM SKYES tatics,
Most brokers wont let short stocks under or at 5, unless it is marginable and u could a borrow.
Quote from mgmaggie:
The Broker is suppose to have a risk management policy in place to prevent such things. Since you are short and the Broker would have had to have the stock to enable you to short it would be interesting to see if they would sue and waste money and time as their long stock ensured they in a sense never were exposed or incurred a true loss.
*newbie*
as long as you ignore facts and reality, then you are correct.
If you have a owing balance and do not pay it in due time, they will begin legal action. First, you'll get a 30 day notice, if you don't repay then, you'll get the court summons.
At that point they'll sue you for the owing balance and probably plus court costs.
At that point they'll sue you for the owing balance and probably plus court costs.
It is a straight up contractual obligation. You committed to that term when you opened the account and you are liable. Whether the broker sues or not will be a business decision based on his assessment of his ability to collect vs legal expense.
How can people be surprised that they are responsible for their trades? The tooth fairy picks up no trade related checks.
How can people be surprised that they are responsible for their trades? The tooth fairy picks up no trade related checks.
Quote from horowitzvlad:
Question about liability and margin.
If I have 10k in my account and short 2000 shares at 5 dollars, what happens if, the next day, the stock opens at 20? Obviously, I lose my 10k, but is the broken completely liable for the 30k remainder? Can they sue a customer or respond similarly?
They do the following: ask to cover the debit, then go to court, then blacklist you. You will never be able to get a retirement account or stock market account anymore for the rest of your life.
This is not necessarily true. What if the stock he shorted came from shares <b>you</b> own, not the inventory the broker owns?
In the OP's situation, the broker absolutely, positively come after him for the 30k.
In the OP's situation, the broker absolutely, positively come after him for the 30k.
Quote from mgmaggie:
The Broker is suppose to have a risk management policy in place to prevent such things. Since you are short and the Broker would have had to have the stock to enable you to short it would be interesting to see if they would sue and waste money and time as their long stock ensured they in a sense never were exposed or incurred a true loss.
Wait you mean if I borrow something and dont pay it back they can come after me and try to collect!?? No shit!
They can't easily place a lien so quickly. They need a court order for that. In order to get a court order, they have to sue you. In order to sue you, they have to serve you, at which time YOU have some time to respond to the statement of claim. From the time they serve you to them getting a court order, that would take some time at which time you do have an opportunity to defend.
I doubt that they will take you to main civil action for 20K. That is expensive and time consuming for them. It could be a small claim depending on your state and this might be good news for you in that the cap for small claims is much smaller.
If your state's small claim cap is 10K, the broker might take you here, eventhough you might owe them 20K, because Small Claims Court is much cheaper. If you lose, the case is settled. They can't go after you for the remainder.
I doubt that they can collect their legal fees from you. The thinking here is that if they want to hire lawyers, that is THEIR problem not yours...unless the defendant is totally ridiculous...which that is not the case here. They might collect court costs, which would be minimal.
Having said that, they may not take legal action at all if they believe that you have no money and believe that you will no have any money for the forseeable future.
I doubt that they will take you to main civil action for 20K. That is expensive and time consuming for them. It could be a small claim depending on your state and this might be good news for you in that the cap for small claims is much smaller.
If your state's small claim cap is 10K, the broker might take you here, eventhough you might owe them 20K, because Small Claims Court is much cheaper. If you lose, the case is settled. They can't go after you for the remainder.
I doubt that they can collect their legal fees from you. The thinking here is that if they want to hire lawyers, that is THEIR problem not yours...unless the defendant is totally ridiculous...which that is not the case here. They might collect court costs, which would be minimal.
Having said that, they may not take legal action at all if they believe that you have no money and believe that you will no have any money for the forseeable future.
Quote from torontoman:
They can't easily place a lien so quickly. They need a court order for that. In order to get a court order, they have to sue you. In order to sue you, they have to serve you, at which time YOU have some time to respond to the statement of claim. From the time they serve you to them getting a court order, that would take some time at which time you do have an opportunity to defend.
I doubt that they will take you to main civil action for 20K. That is expensive and time consuming for them. It could be a small claim depending on your state and this might be good news for you in that the cap for small claims is much smaller.
If your state's small claim cap is 10K, the broker might take you here, eventhough you might owe them 20K, because Small Claims Court is much cheaper. If you lose, the case is settled. They can't go after you for the remainder.
I doubt that they can collect their legal fees from you. The thinking here is that if they want to hire lawyers, that is THEIR problem not yours...unless the defendant is totally ridiculous...which that is not the case here. They might collect court costs, which would be minimal.
Having said that, they may not take legal action at all if they believe that you have no money and believe that you will no have any money for the forseeable future.
even if they do not pursue, they can put you on a BLACKLIST. Never being able to trade again or open account with an american broker!!! This is a fate far worse then getting sued!