Before trading stocks in a margin account, you should carefully review the margin agreement provided by KMS or any other firm offering you this service. Carefully consult with your investment professional on the amount of margin debt you employ in light of your financial situation and investment objectives. If you have additional questions regarding the use of margin or any other aspect of your account, please call the KMS Home Office (206.441.2885).
How Margin Works: When you purchase securities, you may pay the full amount, or you may borrow part of the purchase price from your brokerage firm. To borrow from the firm requires the establishment of a margin account. Securities in that account represent collateral for the loan extended to you by the firm. If the securities decline in value, that represents a decline in the value of the collateral supporting your loan, in which case the firm can take such actions as issuing a margin call and/or selling securities or other assets in accounts you hold with the firm, in order to maintain the required level of equity in the account.
The use of borrowed funds (margin) increases your potential loss as well as profit from the volatility of securities markets. It is important understand the risks involved in trading securities on margin.
Special Risks and Considerations:
- You can lose more funds than you deposit in the margin account. A decline in the value of securities purchased on margin may require you to provide more money 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 regulatory 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 are responsible for any shortfall in the account after such a sale.
- The firm can sell your securities or other assets without contacting you. Most firms attempt to notify clients of margin calls to allow time to meet the call, but firms are not required to do so. Even if a firm has contacted you and provided a specific date by which you meet the call, the firm can still take necessary steps to protect its financial interests, including immediately selling the securities without notice to you.
- You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call. The securities are collateral for the margin loan, and the firm has the right to decide which security to sell to protect its interests.
- The firm can increase its "house"maintenance margin requirements at any time and is not required to give you advance written notice. Changes can take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause the firm to liquidate or sell securities in your account(s).
You are not entitled to an extension of time on a margin call. An extension may be available under certain conditions, but you do not have a right to the extension.