I Will Kill Myself If Apple Doesn’t Go Up Tomorrow – Tales From A Margin Clerk.

[Last week a reader who had recently come my posts on suicide trades and deadly sins of trading wrote me a very interesting email regarding his job as a Margin Clerk.  He was kind enough to allow me to use it here, though he requested anonymity.]

I’ve been a Margin Clerk for a long time with various discount brokerages and I see Suicide Trades everyday.

I was a call center rep in 2001, who was told he was now a Margin Clerk. The Margin Clerks couldn’t keep up with the volume, and I was sent over to help out. They handed me a list of about 250 accounts with calls under $25,000 and told me to start dialing in order to clear as many as I could before Clerks started selling.

During my first week, I had a college guy tell me he would kill himself if $AAPL didn’t go up tomorrow. He was a 22-year-old college guy who had bet all the tuition money his parents gave him on $AAPL. I immediately told the Supervisor, who looked at me and said, “You think I care? Worse case, it becomes an Estate account. Now, keep calling.”

So, those 22-year-old college guys blowing up their 5k accounts at Charles Schwab-like firms do kill themselves. To be honest, I don’t know if the college guy killed himself. There were so many Margin Calls back then you didn’t remember names. I do remember $AAPL went down further the next day.

I do remember some names, though.

I remember the farmer’s wife who called crying, when she figured out her husband had cash advanced any credit cards he could get to cover his margin calls. He had also leveraged the farm. She was in her late 50s and a stay at home mom whose husband took care of the finances.

She figured it out when the collection agencies started calling and she took the pile of mail her husband had started ignoring to her bank account manager. She was desperate to get her husband to stop trading, but knew if she confronted him it would mean divorce.

I remember the guy who killed himself over a 50k account. It was his life savings that he’d put into “safe” mortgage-backed product in 2007. Ironically, the bank paid out his Estate a year or so later and his widow got all the money bank.

There are others, but I’ll move on. You asked about rules, so I’ve got some.

1) Unless you drive your car with your eyes closed, don’t enter market orders outside of market hours. You know how many $FB trades I saw on IPO at MKT? Nuts…

2) Triple-leveraged ETFs are not buy and hold. Learn how percentages work. 10% down doesn’t equal 10% up. I’ve watched a lot of clients lose their life savings trying to hold things like $FAS & $FAZ when they went against them.

3) Don’t trade “size”. Size does matter – it’ll blow you up really fast. I watch people on Twitter talking about trading “size” all day and I shake my head. They talk about it like it’s a badge of courage, when it’s the badge of the fool. Size = concentration. That’s great when you are going up, but when you go down – you will die.

4) Don’t change your investment plan on the fly. I see people all the time start with an investment plan, only to change it for the worse. A) They decide they are a Trading God, because their account is going up, so everything they buy must go up; or B) They are losing money and get desperate to make it back. Usually, it’s A then B. As time goes on, they take on greater and greater “size” and greater risk.

I cannot count the number of accounts I’ve watched blow up doing this. Look through your transactions. If last year you were trading a diversified blue chip account, and now you’re concentrated in a few “sure-thing” OTC bets – think about it.

5) The money you lose is real – it’s not just numbers. If you actually had to hand me $100 bills instead of keystrokes, would you make that trade? If you were down that much at a casino, would you walk away? Think about it before you press verify on the next order.

6) I’m not your friend and I don’t know you. But, I might be the only reason you stay solvent. Lots of people bitch about that stock that the Margin Clerk sold at the 52Week low, only to watch it rebound the next day. What they don’t talk about are the positions we force people out of all the time that continue to deteriorate. If I’m calling you regularly, you are doing something wrong.

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5 Responses

  1. Depending on the market you trade & your experience level, there might only be in total a few weeks a year that justify the use of borrowed money.

    Even during these short bouts when markets are on the hustle unless you:
    1) better have already built a substantial cash cushion of profit so you don’t blow through principal.
    2) understand the market you trade through years of experience. Not b/c you paper traded for 9 days
    3) have done the math and figured out proper and safe exits THAT YOU WILL EXECUTE ON NO MATTER WHAT HAPPENS.

    This is at a minimum and otherwise you would be crazy to use leverage.

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  3. Don’t trade on margin. Simple as that. Then you won’t have margin calls. If you can’t afford to trade a stock, you don’t belong in the markets at all. Watch and learn and begin trading when you have reached certain goals and can afford to actually do it without risking complete and total financial destruction. But the guy above is right. Would you just take money you borrowed from the mafia and bring it to the casino? You might as well if you are mostly using margin to do your trading.

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