This happened to some distant relatives of mine. The details given to me were murky at best, but let's see if any of you can figure out what happened. They got involved with some kind of stock. At some point I assume the price of the stock started dropping. The broker told them they had to add more money or it would become worthless. I'm not sure what happened to the stock, but it seems those relatives lost their home.
So how could adding money to a stock help it from becoming worthless?
2007-02-24 18:08:25 · 4 answers · asked by Paper M 1 in Business & Finance ➔ Investing
If you buy stock in a margin account, the broker will allow you to borrow money to buy more stock. There is a regulation aboutthis: In general, under Federal Reserve Board Regulation T, firms can lend a customer up to 50% of the total purchase price of a stock for new, or initial, purchases.
If the stock goes down then the loan exceeds the 50% and the broker will make a margin call i.e. ask for more money to be deposited in the account. If you don't come up with the cash, the broker can sell the stock at whatever is the going price.
Perhaps the value of the stock was then less than the amount borrowed.
2007-02-24 18:19:12 · answer #1 · answered by rarguile 6 · 2⤊ 0⤋
There are too many if's but's and unknowns to this STORY.
Adding money to a stock does not help make it worthless -- It is the lack of enough OTHER MONEY which makes it worthless.
2007-02-25 02:19:02 · answer #2 · answered by Brick 5 · 0⤊ 0⤋
They did dollar cost averaging on a falling stock and now the company has gone belly up...plain and simple.
2007-02-25 02:20:35 · answer #3 · answered by Mike N 2 · 0⤊ 0⤋
it sounds like a margin call to me. your reletives were over leveraged in a stock that did a toilet bowl spiral down. the stock flew like a turd, plop.
2007-02-25 08:17:18 · answer #4 · answered by i_b_peein 2 · 1⤊ 0⤋