Can Etrade be held liable?

I didn't find your post angry sounding at all. In this generation it seems the lack of responsibility is largely encouraged and fed by those who can make a buck off the stupidity of those who either do not have the time or lack the intellect to look before they leap. It is always someone else's fault whether a parent, a teacher, an institution..take your pick. Lots of popular ones out there today. A good lawyer probably has a list of them at their fingertips..lol..

 

You're probably far more expert about the inner workings of the market and what it needs than myself. My lay opinion is that investment houses should be held to a much higher standard of duty towards their clients than they currently are held. Most of what appears on a brokerage application in an attempt to discover a customer's expertise and/or financial condition is completely unverified -- basically anyone can lay their money down, and I think that investment houses take full advantage of those who do so, believing that they can "beat" the market.

This is kind of like me saying that I can beat Tiger Woods at golf. Not. The average person should not be permitted to trade by him/herself, unless that person can demonstrate a pile of capital and has obtained some serious education. And, almost no one should be permitted to short the market.

This last statement undoubtedly rankles many who will read it, however, what I'm getting at is this:

Market makers and specialists don't short the market. They hold an inventory in a security and then seek to lower their average cost per share by continuously buying and selling the spread. Over time their inventory cost falls to near zero, and thus so does their risk of loss. But, the average investor/trader goes in thinking that he can use someone else's money to trade and predict the market direction, and the market makers and specialists are just lying in wait for that little schmuck. They know generally who's short and by how much and they can usually guess how much capital someone has by watching the number of shares that they trade. So, when somebody takes a short position, the "real" traders just move the market off that position and then continue buying and selling in the spread, only the poor trader is caught with a loss, and then he/she's forced to pay interest to the same company that may have squeezed the market against that poor guy.

Bottom line, anyone who trades needs to have a lot of capital and a lot of training or that person shouldn't be permitted to trade, any more than some guy off the street with no experience should be permitted to operate a 1,000 lb. demolition ball.

Just my opinion, though. Not gonna run for office on this platform.

 

You bring up an argument that has been settled to a degree: The Accredited Investor. However, this applies to Investment Banking more than simple online trading. I highly doubt they will make all online traders be Accredited Investors. Let's look at it from your side:

If a person wants to fight/initiate a court case as a pro se litigant, they are undoubtedly doing it because it's cheaper than paying for the advice and assistance of an attorney.

Should the court hold them to a different standard simply because they don't know the rules of the court system? Better yet, should the clerk of court be held liable for not explaining all the options the person had when they received or requested information or filed their paperwork?

This is very similar to an investor who wants to trade at the deepest discounted commission available, which is alone online and entails NO advice and NO handholding.

The Internet can be a valuable tool for investors. But the basic principles of investing are the same regardless of the method of trading. It is critical that all investors understand the risks associated with their trading activities and take the necessary steps to manage that risk. If they can't, DO NOT TRADE ONLINE.

I think it's as basic as that. And I think I would run for office on that platform.

 

You realize that I get paid to find argumentative defects and exploit them, so, in that spirit, I can distinguish very quickly between the pro se litigant and the deep discount trader.

Etrade is not even close to the deepest discount available to a trader, and in fact, in the trading business, the only way to get to the deepest discount is to be a professional trader. A pro se litigant is charged the same filing fee as is the attorney, but the "pro se" trader, as it were, is charged a substantially greater fee for entrance into the market.

Most retail traders believe that, for example, $0.01 per share of stock is a pretty inexpensive commission. But, the professional trader knows that unless his cost of trading is less than the average spread in a security, that the trader is at substantial risk of losing all of his profit to the cost of doing business. And since in most liquid stocks today, the spread is usually $0.01, the cost of a $0.02 round trip is an automatic loser.

This certain knowledge of a loss is usually enough to keep most retail traders in the market long enough for the market makers and specialists to tank or run the market against that trader and scare him off, or at least, severely limit his ability to trade.

But, does Etrade or Interactive Brokers or Schwab or Morgan Stanley tell their investors the basic facts of life about trading? No way, because if they did, there would be boatloads of money lost and probably a hell of a lot of new legislation that would force brokers to make true full disclosure to their customers as to just how agressively the in house traders are trading directly against their own customers.

As an attorney, I am bound by the Rules of Professional Conduct. My license is at risk if I actively maintain a financial interest in a case that is adverse to my client, and I could be disbarred (and sued) for failing to uphold this duty. Brokerages have no such fiduciary duty to their customers, and in fact, they take great pains to force customers to waive any possible theory of liability against the brokerage.

Do some attorneys play fast and lose with their clients? Sure, but here's the big difference -- attorneys generally earn enough per hour to make acting against their client's interest non productive, while investment house employees, except at the upper rarified levels, do not. Most brokers don't really understand trading, and their employers don't want them to understand. Most traders believe that they can beat the investment house traders, not just marginally, but HUGELY. This fantasy should be BOLDLY discredited on the home page of every trading web site and on every customer agreement, like so:

NOTICE: YOU CANNOT BEAT US INTRADAY, BECAUSE WE HAVE MORE CAPITAL AND WE CAN OUTLAST YOU. IF YOU TRY TO TAKE OUR MONEY WE WILL FIND A LEGAL WAY TO SQUEEZE YOU OUT.

I really have no sympathy for kizzy's dilemma, because he is a reasonably eduated person, who is in the financial field, and he should know better than to play with the bull, unless he wants the horns.

But, there are massive numbers of other people who belive that they can play with the bulls (and bears). This site is a veritable testiment to the ability of people to misunderstand the market and how it operates.

The law makes no illusions regarding its monopoly over its practice. Neither does medicine. You have to have the education and the license, and it's a fairly costly exercise to get to the place where you can go in and earn a living.

The investment industry creates very great illusions regarding its monopoly over its practices. They ply the astrological tools of technical analysis as a means of getting people to believe that they can forecast the future with certainty. Meanwhile the in house traders use their captial resources to coerce the market against the very technical tools that they ply their customers with.

Most people who do anything other than dollar cost average, lose money in the markets. Period. That is the difference.

Having said all of the above, I'm basically a libertarian, so I really have no personal problem with the notion of caveat emptor. But, it's one thing for a buyer to beware, and another to be induced via a misrepresentation, and my view is that brokerages lean a little to far towards misrepresentation than I'd like.

The industry needs full disclosure, so that the buyers actually "can" beware.

 

Do you really believe adding "disclosure" would help or do you mean it would close the "loophole" you perceive its lack creates?

I am not sure how adding even more written information could possibly help when you are dealing with people who agree to contracts they are too lazy or too incompetent to read or fully understand. The phrase.. a fool and his money comes to mind. ;o)

Having said that; The idea that regular people are not capable of reading, understanding risk, learning about the market and handling their own money is a big part of what has kept many out of the market for so long. I find it an elitist view that rankles.

The fact is, there are many stupid people loosing their money in many different ways. Some things would not change regardless of occupation, hobby, regulation or information. But to think that ALL people need their hand held in this business strikes me as snobbish in the extreme. That attitude is what initiated the pattern day trader requirement. And we all know that rule has kept many stupid gamblers solvent don't we? I think it actually just prolonged the agony.

Everyone is entitled to their own view of course. Mine is simply natural selection where the markets are concerned and not hand holding. There isn't, after all, a mandate that one MUST trade or invest. It is still a completely discretionary decision.

Cheers,

BD

PS.. Here's one for you. If I go to a horse race and bet my entire year's salary on the favorite and the horse breaks it's leg during the race and doesn't finish. Can't I hold the race track liable for not telling me that "could have " happened. And maybe they should have told me when I laid my money down that I Could possibly loose it all. I'm sure they didn't say anything about that at the time. Those dirty bastards just wanted my money and nothing else!

Could I hold the owner's of the horse liable because they somehow did not prevent it from happening. I'm sure I could actually hold the horse liable since he wasn't supposed to screw up like that and perhaps even the jockey. Maybe he pooted on the horse and caused it to happen. It must be someone's fault because now I don't have any money left.

I'm sure I could come up with even more given time. lol I know it's a lousy example but it's a Saturday and I'm doing my best to find a reason to procrastinate the "work" I have on dock today ;o)..

Have a good weekend.

PPS.. I'm just having fun.. not trying to be a jerk. ;o)

 

Full disclosure to potential traders would be to show the performance statistics of those retail traders who actually trade with the brokerage, so that there is no illusion as to what kind of performance can be expected.

Investment firms portray themselves as places of financial enlightenment where customers are more likely to make money than to lose it. They promote the idea that there are sophisticated techniques by which the investor can outperform the market. Such positive statements, if made by a "racetrack" or even a car dealer would be deemed fraudulent misrepresentations. But, in the investment industry, it's all good, and moreover, brokerage houses are permitted to disclaim all liability, whereas, if in your scenario re the horse breaking its leg, if the racetrack knew that the horse was actually likely to break its leg during a race, I actually would have a legal claim for recovery based on negligent or intentional misrepresentation.

 

just an update.

it seems that the nasd contacted etrade. they have closed my acct, completely. i called them today to inquire about how they wanted to handle the situation now that i can't access my acct. to my astonishment the rep told me that they had no records of my acct number. she even had the audacity to a ask me to submit a new app 4 a new acct. thank goodness i have all the emails of my confirmations. there's something fishy going on here. its a dirty, dirty game.

 

This is a nightmare...

 

Says exactly what I said: She burned her pussy with McDonalds Coffee and sued them. Actually, she burned her asshole too.

 

I think your right it’s a conspiracy. It’s like the movie Fallen with Denzel Washington being framed and having his life manipulated by the fallen angel Ezazal. You’re being played around with by Etrade. They open trading accounts for you without following NASD margin regulations. The put stocks in peoples heads around you and on your computer. The all but force you to buy the stocks because how can a small investor ever lose money in the market it’s unheard of. So if you can’t lose why not just use that extra buying power. Damn you Etrade for stealing this boy’s money. I bet the bastards in corporate headquarters laugh and they see you put the orders in real-time. They are plotting to take down modern civilization and you caught on to it all. I think NASD and even America should thank you for taking action.

Or maybe Etrade just had a glitch in software that gave you extra buying power. Maybe the people working for Etrades call center make 25K a year and are not trained well. It could also be they don’t give a crap. Maybe once you involved the NASD with your jackass scheme they pulled your account records off view from basic phone support. Maybe the reason they did this wacky thing is so you can’t call the janitor at the call center and use that information against them. Maybe the call center people don’t have a clue what’s going on and nobody to ask so they just tell you to open a new account. You are right I think it’s the first choice too.