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. 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 >>
  2. Why is purchasing stocks on margin considered more risky than traditional investing?

    Learn why purchasing stocks on margin is riskier than traditional investing, although it can be more profitable when it is ... 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 >>
Related Articles
  1. Financial Advisor

    Is Your Broker Acting In Your Best Interest?

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

    Evaluating Your Stock Broker

    Make sure you're getting the best service by staying informed and involved.
  3. Investing

    Picking Your First Broker

    If you're a rookie investor, your first big investment decision should be an informed one.
  4. Trading

    Introduction to Margin Accounts

    Find out what your broker is doing with your securities when you invest on margin.
  5. Trading

    Is Your Forex Broker A Scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  6. Investing

    How To Choose The Right Online Trading Broker

    The online broker market is becoming more competitive, but differences exist in services that can help traders choose the broker that’s right for them.
  7. Managing Wealth

    Interpreting Your Broker's Reports

    Broker's reports can be confusing, but they don't have to be. Find out what information you need from your broker.
  8. Investing

    10 Things Your Real Estate Broker Won't Tell You

    Whether you're selling a home or buying one, go in with eyes wide open when you're working with a broker.
  9. Investing

    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.
  10. 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.
RELATED TERMS
  1. Give Up

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

    A commodities or securities broker who provides back office functions ...
  3. Discretionary Account

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

    Firms that provide currency traders with access to a trading ...
  5. Each Way

    A slang phrase used when a broker earns commissions from both ...
  6. Two Dollar Broker

    A floor broker who executes orders for other brokers who cannot ...
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center