When Mr. Smith tried to open accounts at Brokers S and T, each company completed its standard credit verification process. They applied to a securities industry data center and discovered that Mr. Smith had lost $6,000 in credit to broker R. Broker S. Broker S decided he didn`t want to do business with Mr. Smith, broker T was just willing to keep his account with a large deposit. Investors and brokerage firms must sign an agreement before opening a margin account. Under the terms of the agreement established by FINRA and the Federal Reserve Board, the account must be subject to a minimum margin before investors can trade on the account. The minimum or initial margin must be at least $2,000 in cash or securities. Brokers, like other lenders, have policies and procedures to protect themselves against market risks or the depreciation of securities and credit risk in which one or more investors cannot or cannot meet their financial obligations to the broker. Among the options available to them, they have the right to increase their margin requirements or not to open marginal accounts. The way to avoid this is to understand that a broker is primarily a broker who will act to limit his financial exposure to rapidly changing markets.
The broker is not a “tax preparer” and is not required to base his actions on the client`s tax situation. The broker is also not required to sell client choice securities. The only way to avoid balances is to ensure that you hold a “buffer” of sufficient capital in a margin account at any time, or to limit transactions to cash accounts, where an investor must pay for the entire trade on a timely basis. A margina account is an account with a brokerage company that allows an investor to buy securities, including stocks, bonds or options – all with the broker`s cash loans. All margin accounts or the purchase of securities on the margin have strict rules and regulations. The margin of preservation is such a rule. It sets the minimum amount of equity – the total value of the securities on the margina account, minus all securities lent by the brokerage company – which must be in a margin account at any time, as long as the investor remains attached to the securities purchased. On the other hand, the brokerage calculates interest on marginal funds while the loan is pending, which increases the cost of the investor for the purchase of the securities.