A:

Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two common instances in which your broker's actions are legal:

First, if you have some type of discretionary account for which you have signed documents giving the broker permission to buy and sell securities for your portfolio, then your broker may sell from your account. However, the trade the broker made must be within the guidelines set out in the account contract, which describes your risk tolerance and your investment goals. If you believe the broker's actions did not satisfy the guidelines set out in your contract, the first thing you should do is send a letter discussing the facts of the situation to the broker's firm and manager. It is possible that the broker and the firm were unaware of the situation and will deal with it accordingly and internally once it's brought to their attention. The letter also provides you with written proof of your claim. Second, contact the SEC and file a complaint for review. If the firm and broker have not dealt with the matter in a satisfactory manner or have not explained the situation, the SEC can investigate further.

Second, if you have a margin account and your equity level has fallen below the firm's maintenance margin requirements, the brokerage has every right to sell your securities without contacting you or obtaining your permission. Most often, firms are not required to give you a margin call, so if they give one, they are doing so as a customer service gesture. The actions you can expect from your brokerage are spelled out in the margin account agreement that you signed upon opening the account. To ensure it receives the money you borrowed, the brokerage will sell your account's securities regardless of whether you lose money on the trades, but the broker may not necessarily use a strict method when picking the stocks to sell out of your account. Instead, the stocks that are sold to cover the entire deficit in the equity level may, for example, be picked in alphabetical order. To top it all off, upon selling your securities, your broker may even charge you a full commission for the transaction.

To learn more, read Is Your Broker Acting In Your Best Interest?

RELATED FAQS
  1. It's my first time investing and I would like to know whether to choose margin or ...

  2. I'm new to this. Can I sell or buy stock by myself?

    In order to buy stocks, you need the assistance of a stock broker since you cannot just phone up a company and ask to buy ... Read Answer >>
  3. There are so many stockbrokers out there. How do I go about choosing the best one ...

    If you decide that you have the knowledge and experience to take on stock investing, or if you feel you would like to give ... Read Answer >>
  4. Can you short sell stocks that are trading below $5? My broker says that I can't.

    Short selling can be very risky for both the investor and the broker. Brokers will often tell investors that only stocks ... Read Answer >>
  5. Why choosing the right investment advisor is crucial for your portfolio's health

    Absolutely! Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial ... Read Answer >>
  6. Why do brokers ask for personal information before they make any trades?

    According to the Securities and Exchange Commission (SEC), there are three main reasons why a broker will ask for personal ... Read Answer >>
Related Articles
  1. Trading

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  2. Investing

    Brokers and Online Trading: Conclusion

    One of the most important investment decisions you will make has nothing to do with which stock, bond or mutual fund you buy. We're talking about selecting a broker. Hopefully the information ...
  3. Markets

    How to Pick the Right Stockbroker

    A stockbroker can play an invaluable role in growing your investments, but not all brokers are created equally. Use this guide.
  4. Financial Advisor

    Tips For Resolving Disputes With Your Financial Advisor

    Before you blame your advisor for your losses, be sure you know your rights and responsibilities.
  5. Financial Advisor

    Broker Or Trader: Which Career Is Right For You?

    A day in the life of a broker or trader is an exciting and varied one. Find out how to decide between these two financial professions.
  6. Markets

    Getting Started In Forex

    Before entering this market, you should define what you need from your broker and from your strategy.
  7. Investing

    Short Selling: What Is Short Selling?

    Investopedia Explains: The fundamentals of short selling and the difference between going long or short on an investment.
  8. Personal Finance

    6 Questions To Find The Best Real Estate Broker

    A broker will play a key role in selling your house quickly and for the best price. Here's how to identify one who will do the best job for you.
  9. Markets

    Forex Broker Guide: Broker Basics

    RegulationA reputable forex broker should have rules, programs or services to protect the integrity of the market. They should protect the public from fraud, manipulation and abusive practices ...
  10. Investing

    Research Report Red Flags For Brokers

    Discover how to look past analysts' ratings to find winning stocks for your clients.
RELATED TERMS
  1. Give Up

    A procedure in securities or commodities trading where the executing ...
  2. Forex Broker

    Firms that provide currency traders with access to a trading ...
  3. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  4. Two Dollar Broker

    A floor broker who executes orders for other brokers who cannot ...
  5. Discount Broker

    A stockbroker who carries out buy and sell orders at a reduced ...
  6. Aged Fail

    A contract between two broker-dealers that has not been settled ...
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center