It you were trading futures/options you would not win. It is called going into debit and you sign a piece of paper acknowledging the risk. Broker than can come after your personal assets to cover deficit.
Actually, there's what's called "Risk Management Program for futures commission merchants". It's a bunch of legality applied to FCMs. Risk Management Program for futures commission merchants: https://www.law.cornell.edu/cfr/text/17/1.11 Needless to say, FCMs must adhere to the rules that stipulate that they must "establish, maintain, and enforce a system of risk management policies and procedures designed to monitor and manage the risks [involved in] the general volatility and liquidity of the markets and products traded by customers, the futures commission merchant's own liquidity and capital needs, and the historical trends in customer segregated fund balances, including undermargined amounts and net deficit balances in customers' accounts." This means they need to get you out of your position before you fall into a deep hole. This is usually done by upping the daily margin. Once your account falls below the margin threshold, it's their responsibility to liquidate your position. If they didn't, well, shame on them.
There could be many reasons but when I saw traders holding onto poor performing stocks that do not know how to manage their business filings prior to being delisted...it occur in an overall bullish market or bullish industry (example dot.com days prior to the bubble burst). Thus, I'm assuming they held on because they hoped the stock company will get its act together for the stock price to rebound. Heck, I remember on the Yahoo! message boards a few would pump and cheerlead their stock as if they can will divine intervention. My guest, probably a corporate owner or majority investor trying to get whatever they can on their shares prior to delisting. Yet, I'm sure others were just poor slobs with poor risk management, no stops and/or trying to prove the market was wrong. wrbtrader
Not sure about that. My account was margin called (and trades closed) long before it went negative...and it was futures which did have leverage. There should be controls in place for that...unless maybe you use a FX broker with 400:1 leverage in some shady country.
Your broker is doing the right thing. They're supposed to issue a margin call before your account ever reaches $0. They should get you out of the position when the balance reaches the risk threshold. For example, with CQG, they will automatically liquidate your position when the overall account balance dips below the required daily margin.
Right. So it seems like your post (copied below) that started these replies shouldn't really apply to anyone, right? "Okay, here's an example that will definitely result in a lawsuit. My stock (or any other instrument like futures, forex, etc) tanked and my account accordingly went down to $0. At this point, my broker MUST liquidate all my position. If the broker, however, did not sell my position and my account dips into the negative (say, $10,000) AND THEY DEMAND I ADD MORE FUND to bring my account back up to $0, then you can bet I will sue their ass. And I will win.?
Well, technically, you should not receive a margin call if your broker has a stringent risk management protocol. However, you will be pleasantly surprised to know how lax this is among different brokers.
With the intense level of leverage possible in futures, combined with the fact that most futures traders lose money over time and don't use margin wisely, I am glad the futures industry has strict rules for liquidation in place. Otherwise all of our accounts would be in danger because some reckless gamblers blew up FCMs. I have never had a margin call in 11 years, not even close. Trading futures and staying in the game over time is about a professional level of Risk Management skill, it is a lot like war. Only risk so many "soldiers" in one battle. If you don't have that mindset, you will not last in the long term. And you will not win the war for your more powerful financial future via futures!
Dudes. Margin is risky. Personal responsibility is required. Why is there even a debate? If you trade using borrowed money it's a loan you're responsible for repaying in full. Crystal clear example: You had 30k in your account and two weeks ago you foolishly used margin to buy 60k of LK stock at $20/share. Let's say it gaps down to $5/share. On the open your broker liquidated your position. The broker couldn't have gotten you out earlier because it gapped down. You're responsible. Think about overleveraged positions that gap against you. Happens all the time, your broker has no way to liquidate you at breakeven. Brokers might want to include explanations about that to newbs as part of margin acct approval process so it's clear to wankers Exactly how margin liability works. #ownyoutrades #personalresponsibilityisrequired #dontbeawhinywanker