Home > Technical Topics > Risk Management > Going broke in margin acct. and owing money

Going broke in margin acct. and owing money

  1. What if you blew up your account selling puts and calls and owed your broker $300,000. Will they (TD, IB, Schwab) come after you to pay it? What if you do not have it? What is the process they go thru to try and get at least some of it back? Thanks.
  2. Credit collection agencies, and Uncle Tony with the baseball bat.

    Plus, if you do not pay it back you may get blacklisted across the brokerage community. Something I heard about, do not know if it really exists, but something worth considering.
  3. A fool and his money are soon parted.
  4. Most firms will employ all legal remedies to recover an unsecured debit. Size doesn't really matter as most don't want to be seen as patsies. If the unsecured gives you a negative net worth there is always bankruptcy protection, but that is a credit nightmare. Many unsecured debits resulting from market events drive investors into bankruptcy - if you have lots of other assets they will pursue those. Your margin agreement will outline their legal remedies.
    They may share their experience with other firms, but most firms have subscription services that alert them to bankruptcy filings and a future margin agreement or new account form may require disclosure in line with credit reporting laws.
    In the 87 crash many OEX premium sellers were left with unsecured debits. Many joined the class action against the CBOE and did receive some settlement. As I recall the unsecured with the firm and the action against CBOE we treated as two separate legal issues. Many of the participants in the class action didn't have unsecured debits. It get longer and more complicated, but if you ended up with a 300K unsecured I suspect you are going to file bankruptcy and those laws will be whats relevant.
  5. I was reading a PDF by Larry Williams and he said that two of his students (a couple) got their house taken by their futures brokerage to pay the debt.

    they often operate on thin profit margins so they will be very aggressive
  6. What if you blew up your account selling puts and calls and owed your broker $300,000.

    You could run for president and probably win.
  7. The BADI (acro for SS/names not to be opened) list is very real. But I suspect if you are 300k in the hole your are not going to be opening up new accounts soon.

    On second thought...maybe that is the perfect time.
  8. the rule of thumb is not to invest more than you can lose. But it's not a rule often followed, and sometimes when you think something is a sure bet, it can go sideways.

    With the current market atmosphere, I'd say what happened to you is typical of what most traders are experiencing.
  9. we have to pay till we declare bankrupt.

    I did naked sell call/put option before. it was a damn foolish thing to do as risk / reward ratio was damn unhealthy.
  10. Why did you do it then?
  11. it depends of who r u and what do u have

    if you do not have much, you just walk
  12. Wasn't he a trading instructor? Kind of looks bad if his students went into bankruptcy.
  13. Explain please.
  14. That all depends on which state said debtor resides. If you have a house.... make sure your wife's name is on the deed too. That pretty much makes keeping your home out of judgements levied against you bullet-proof. Might be hard to do ex post facto though.
    If all else fails...max out every credit line you have on Bitcoin and skip town. :sneaky:
  15. You must be one of those professional traders?

    For us mom and pop retails, our brokers will not let us get to that point. For sure not Schwab who I have been with for 20 years and I always got margin calls as soon as accounts dipped below margins requirement. They are always in the position to liquidate my account before me owing them money?
  16. Schwab lets people buy options on margin?
    Gotta like that.
  17. They will get a judgement on you and all your future wages/ income will be garnished....
  18. Yes. Under certain conditions.
  19. Yes, they will get a judgement which will follow you around and attach assets if and when they appear. BK is the only way out of that trap....or changing your name and moving to Uzbekistan.
  20. A margin account is required only if you write options... because in theory your risk is unlimited. Even if its a multi-leg strategy with limited risk. Purchases of puts/calls however come directly from, and are limited to, the cash side of your account.


    I assume thats basically because with an option you can lose 100%, whereas with stocks they can define a reasonable margin risk.
  21. We are in agreement here.

    I was referring to writing naked options. You won't be losing $300,000 in your margins account if you only long options.