In an arbitration claim filed in August with the New York Stock Exchange, Del Grande alleges that the trades were made without his permission. He also said he did not realize he had signed an agreement allowing the margin debt. The complaint also accuses PaineWebber of trading too much, or churning, the account. What Del Grande does recall is the constant flurry of paperwork, the new and arcane language of the investment world. He said he told the broker he did not understand the statements he was receiving from PaineWebber, but that the broker told him not to worry.
Margin is one of the riskiest investing strategies.
It involves borrowing money from the brokerage firm to buy stocks. If the value of the stock rises, it magnifies the gains. But margin works the same way on the downside, magnifying losses. Some investors end up losing even more than they borrow, and many are unaware that their broker can sell securities in a margin account without notifying them, to maintain the proper level of collateral. This is known as a margin call, when brokers sell the securities after the price of the stock, which serves as collateral, drops.