I recently got my first margin call from E*Trade for about $3K. It scared the hell out of me, not because I could pay (I had the money sitting in a cash account and just transferred it over), but the call was unexpected and I was worried that I misunderstood the system to the degree that I had triggered it.
The day after the call, I got on the phone to E*Trade and admitted that I’d had a margin call, told them that it was no problem paying it (and I’d already transferred the funds), but that I didn’t understand what had put me into a margin call situation. The man on the phone didn’t apologise, but it turns out that the problem was on E*Trades end and they considered a bunch of “safe” stocks (which they’ll loan 70% of the stock value on) as “riskier” stocks (which they’ll loan 50% on). He told me the call wouldn’t be enforced, and after checking my account assured me I was fine (even if I hadn’t transferred the cash in).
I used the situation to get more details about margin calls and what would have happened if it had been a real call. Apparently the speed on which they’ll sell your stocks depends how far over the line you are (he said they’ll give you 3 or 4 days if you’re just a little over, bit will sell immediately if you’re significantly past your limit). I asked him for good customers with a conservative portfolio if they ever will waive a margin call or increase their loaned %, and it turns out that its actually a law how much they can allow people to buy on credit (so short answer, no).
In the end I was happy to have my understanding of the margin account challenged (and happy that it was a problem on their end and not in my understanding). I learned some new things about my account, which is always a good thing.
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September 17, 2007 at 11:15 am
That’s definitely a failing with the margin system. If u are fully margined and there is a big drop ie 20% then the stocks might get sold on you before you even know about it.
U’ve mentioned borrowing at prime + 1% with your broker – can you get a LOC from the bank for the same rate? That might be a better way to finance it. Not sure if you can do a HELOC on your investment property?
Mike
September 17, 2007 at 12:53 pm
Cheap, do you have your whole portfolio on margin?
September 17, 2007 at 3:20 pm
I haven’t had much success, although I haven’t tried very hard, at getting a LOC from my bank at the same rate (prime+1) as my broker (TradeFreedom.com).
I think it has to do with the fact that the margin loan is, at least partially, secured by the equity you have in the market.
September 17, 2007 at 4:48 pm
There are Canadian securities laws regarding margin. It depends on the price of the stock and I don’t think the brokerages need to honour the minimum (i.e., they might be able to have a stricter margin requirement).
Long Positions – Margin Required
Securities selling at $2.00 or more – 50% of market value
Securities selling at $1.75 to $1.99 – 60% of market value
Securities selling at $1.50 to $1.74 – 80% of market value
**Some securities (worth >$2) are eligible for reduced margin (30%). I don’t know how they get that designation.
So the interesting thing is that if you buy a stock worth $2.01 on margin that falls a few pennies could automatically incur a margin call.
Short positions also have margin requirements, but different values.
http://www.checkbeforeyouinvest.ca/MarketRegulation/SRO/ida/rr/srr-ida_20040625_ida-reg-100-2-f-i.jsp
September 17, 2007 at 6:24 pm
Mike: Drops in value are definitely a worry. E*Trade seems to send out an e-mail, and since you can automatically transfer money into your account there, it doesn’t seem too bad (unless you can’t afford to make the call or are away from home when it hits). I tried to get a HELOC on my condo, but since it wasn’t my primary residence they were difficult. The unsecured LOC I have is for prime + 2.5 (I think), so E*Trade’s rates are better.
MDJ: $-34,732.83 Margin debt, $58,238.00 securities value, $23,505.17 net value (59% on margin as of end of day today).
DM: Yes, absolutely. They want to loan you money so you trade more *AND* pay them interest.
WC: Thanks for the info and the link I’m definitely getting more than 50% on margin, so I’m not sure how that works…
September 18, 2007 at 9:07 am
That’s a lot of money on margin for a guy who’s cheap
Making calls to advise clients that their investment are free falling is not a great job either. Imagine if you have to call a person who does not have enough money to pay you back. You sell everything and that (poor) individual is left with nothing (almost).
September 18, 2007 at 10:26 am
FB: I agree. The only reason I’m at all comfortable with it, is currently my dividend payments are covering the interest, I have a fair bit of cash available, and if need be I can fairly easily cover the monthly interest payments (of about $200).
October 10, 2008 at 4:18 pm
This past week, over 750 shares of NFLX was sold in my Etrade account. Three hours later I get an email saying I had a margin call and get money to my account, of which I had 3 times over in an Etrade complete savings account. At any rate, ETRADE sold me off then sent me a notification before I could do anything making me loose $5000.
Etrade would not appologize or correct this, Etrade basically made me loose $5000 although I had the money to cover in another Etrade account.
Does anyone know the law on this one?
In my oppinion, ETRADE sucks big ones for doing this and I am really really mad about this.
Anyone have an idea as to how to hit them back?
October 13, 2008 at 7:21 pm
Brad,
I had almost the same thing happen to me. I got an alert saying I had until the end of the day to satisfy my call. Then they sold my margin position 5 hours before the end of the day. I didn’t have a chance to transfer funds into the account, The early trade put me out about $4000 that day.
I sat on the phone with two reps and all they would say is that they could liquidate my assets at anytime because that’s what the margin agreement said. I argued that the deadline they sent outweighs the “any time” clause because it’s more recent than the margin agreement and goes against their word of having a deadline.
It’s curious that they sold the stock at nearly the ABSOLUTE bottom.
Something is really fishy here, and I’m thinking of hiring a lawyer for a class action.
October 23, 2008 at 3:07 am
Guys think about it!
Jake say’s, “there is something fishy going on” NO! ” THERE IS SOMETHING SHARKY GOING ON!”
Joke aside…. similar situation… they send a margin call, 9am, sold by 12pm, for a $3000 they sold $20K (Value to me) share for $9000, and the margin call was for only $3000. been on the phone with 11 different “Bulls hitters”, all they say is “Sir, I understand where your coming from.” there is lot more to this story, which I don’t want to say, but I think as Jake say.. “There is something Fishy/Sharky Going On.
Good Luck guys.. anyway you can help, please let me know, I would really appreciate it….
October 30, 2008 at 10:49 am
Unfortunately, unlike the US, there are huge holes in Canadian securities regulations. The problems over at Tradefreedom are even worse, Including a “glitch” in their edge trading platform that stops you from even knowing you are under margin or that they have sold your stocks. They butchered traders in early October without even an email or phone call… and oops so sorry from our “Glitch”… so sue us, was all they said. Bottom line is etrade is still the best platform, but really if you are playing on margin in Canada you are opening yourself up to being screwed and manipulated, so don’t do it.
February 21, 2009 at 12:13 am
I need help to find a laywer again etrade. I have huge position on Citi and has a 52K on margin call. I do have the cash or other securities to cover the call.
My marin call deadline was 02/24/2009. eTrade sold 99% of my portfolio worth several hundred thousand dollars just to cover 52K margin.
I am totally out and lost my entire wealth in this. I need to seek justics. I am not American citizen and do not know of any good laywers that can help me.
If you know of any, please help.
Kelvin
June 27, 2009 at 3:22 pm
This issue is becoming more and more interesting with every post. My sister-n-law transferred some of her funds that were being managed at a well known institution, to trade with E Trade. BIG MISTAKE and unfortunately, she has fallen prey to their unethical tactics. Now, it is a fact that they are allowed (by terms of the fine print in the margin agreement) to change their margin requirements on any position at any time. Interestingly, after my sister-in-law entered a position at 30%. Prior to doing so, she phoned E Trade and specifically asked if there would “ever be a significant change to the margin requirement.” The rep at E Trade explained that it would never suddenly “go higher from 30% to 50%, unless an extreme difference in the behavior of the stock, warranted it. On Friday morning, she awakened and looked at her available fund withdrawal and noticed a $0 balance (after she had already written two checks against the account in the amount of $77.00. When she phoned E Trade to ask about this sudden change, she was informed that she was in a “margin call” and needed to pay $3000 to cover it, since the margin requirement for the position on which she borrowed at a 30% requirement, had increased to a shocking 100% overnight, driving her into a negative. She asked for the reason and was informed that it occurred due to the stock’s volatility. BS! We have all looked at the historical charts of it and immediately recognized that the stock’s performance hasn’t changed one bit! This is an obvious attempt on behalf of E Trade to drive people into margin calls purposefully, as opposed to allowing them to hold their investments. I believe this is a tactic to unfreeze “tied up” positions so that a customer will trade more often, placing money into pockets. There is undoubtedly something unethical about the manner in which they operate. My sister received an alert that she must cover her call by Wednesday at the close of business. On Tuesday morning, we are going to write $4000 into her brokerage account to the call. If E Trade decides to sell her position at a loss before she has a chance to satisfy the call (as the above posts have indicated), We will, without question, pursue this matter legally. After we deposit those monies into her account, we will see to it that she leaves the sleezy and company with very “unclean hands,” and NEVER look back. If you are a quality individual who has means, avoid this company at all cost(s). They are very underhanded.
July 9, 2009 at 5:31 am
cheap… what was on post #4 is absolutely correct and you kind of touched it yourself when you admitted it was nice to have your understanding of margin a/c’s challenged.
im just a rookie and even im smart enough to know that if youre buying on margin or selling short… your playing with fire unless you are always watching and have cash on hand to meet margin calls or to fund deficit positions.
shame on you for not knowing before you jumped in… regardless of whether this was e*trade’s fault or not. you got lucky. be thankful and more respectful of the ‘game’ you are playing.
October 23, 2009 at 11:45 am
Etrade sold my stock as a margin call WITHOUT notifying me. It happened Oct 2008 and Jan 2009, I owned 800 share of Microsoft.
Since I intended to hold the stock for the long term, I did not log into my Etrade account until Oct 2009 and this is when I discovered Etrade had sold half my shares. I am pissed, now MFT is trading at $29 today and the margin call was totally unnessesary. More of an outrage, I had plenty of money in my Etrade savings acct to cover the margin so why didnt they just sweep it into my brokerage acct automatically or call me on the telephone to ask me to do it?