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When you purchase securities, you may pay for the securities
in full or you may borrow part of the purchase price from
your brokerage firm. If you choose to borrow funds from your
firm, you will open a margin account with the firm. The securities
purchased are the firm’s collateral for the loan to
you. If the securities in your account decline in value, so
does the value, so does the value of the collateral supporting
your loan, and as a result, the firm can take action, such
as issue a margin call and/or sell securities or other assets
in any of your accounts held with the member, in order to
maintain the required equity in the account.
It is important that you fully understand the risks involved
in trading securities on margin. These risks include the following:
* You can lose more funds than you deposit in the margin
account. A decline in the value of securities that are purchased
on margin may require you to provide additional funds to the
firm that has made the loan to avoid the forced sale of those
securities or other securities or assets in your account(s).
* The firm can force the sale of securities or other assets
in your account(s). If the equity in your account falls below
the maintenance margin requirements or the firm’s higher "house" requirements,
the firm can sell the securities or other assets in any of
your accounts held at the firm to cover the margin deficiency.
You also will be responsible for any short fall in the account
after such a trade.
* The firm can sell your securities or other assets without
contacting you. Some investors mistakenly believe that a firm
must contact them for a margin call to be valid, and that
the firm cannot liquidate securities or other assets in their
accounts to meet the call unless the firm has contacted them
first. This is not the case. Most firms will attempt to notify
their customers of margin calls, but they are not required
to do so. However, even if a firm has contacted a customer
and provided a specific date by which the customer can meet
a margin call, the firm can still take necessary steps to
protect its financial interests, including immediately selling
the securities without notice to the customer.
* You are not entitled to choose which securities or other
assets in your account(s) are liquidated or sold to meet a
margin call. Because the securities are collateral for the
margin loan, the firm has the right to decide which security
to sell in order to protect its interests.
* The firm can increase its "house" maintenance
margin requirements at any time and is not required to provide
you advance written notice. These changes in firm policy often
take effect immediately and may result in the issuance of
a maintenance margin call. Your failure to satisfy the call
may cause the member to liquidate or sell securities in your
account(s).
* You are not entitled to an extension of time for a margin
call. While an extension of time to meet margin requirements
may be available to customers under certain conditions, a
customer does not have a right to the extension.
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