Trading Education Trading Help Learn to Trade Trading Rules
- By Lucien Bechard
- Updated August 23, 2023
6 min read
SHARE THIS ARTICLE
Can a broker sell your investments without your permission? In the first months of 2021, similar searches hit an all-time high during the meme stock frenzy. Many investors believed they saw some of their investments frozen or sold without consent. Questions of legality were mentioned. Brokers have various powers depending on which type of brokerage account is operated. It is all mentioned in the fine print that none of us ever read upon opening our brokerage accounts. Better late than never to demystify this question and make new and seasoned investors more aware of their account specifics. This information will be useful, especially for investors with margin accounts. In the final section, we will also answer whether Robinhood acted legally or not when the company froze certain stock purchases and sold some investors’ positions.
Table of Contents
- Discretionary vs. Non-Discretionary Accounts
- Can a Broker Sell Your Investments Without Your Permission with Discretionary Accounts?
- Non-Discretionary Accounts
- Can a Broker Sell Your Investments Without Your Permission with Margin Accounts?
- Forced Liquidation
- Best Brokers for Margin Accounts
- Did Robinhood Sell Investors Stock Without Permission?
- A Broker Can’t Sell Your Investments Without Your Permission, Unless…
Discretionary vs. Non-Discretionary Accounts
Can a broker sell your investments without your permission? In 2021, Robinhood and other major brokers were accused of selling their clients’ positions without permission. As a result, many investors did something they never did before. They read the documents given to them during their account openings. What do they say? There are two types of cash accounts, and each has different rules. Let’s take a look at them.
Can a Broker Sell Your Investments Without Your Permission with Discretionary Accounts?
Discretionary accounts, also known as managed accounts, give the broker the right to make trades on behalf of the customer without their permission. Brokerages use their discretion to make these trades. However, clients are informed by law and know their broker can make trades on their behalf.
Can a broker sell your investments without your permission? Often, there are limitations regarding the types of trades allowed.
An Investment Policy Statement (IPS) is implemented to prevent unlawful trades. Most brokerage accounts belong in the next section.
Non-Discretionary Accounts
Can a broker sell your investments without your permission? Non-discretionary or self-directed accounts give all the power to the clients. Brokers aren’t allowed to make any transactions on behalf of their clients. If the broker wishes to make a transaction, they must contact their client and get their permission.
If you notice a broker-initiated transaction, you must contact them directly and demand explanations. Then, they can be sanctioned for their actions.
What about margin accounts?
Can a Broker Sell Your Investments Without Your Permission with Margin Accounts?
Can a broker sell your investments without your permission? Margin accounts follow different rules. Investors with margin accounts borrow money from the broker for more buying power. Wealthier investors have access to more leverage, up to 20:1. Brokers can sell their clients’ position when margin requirements aren’t met. Let’s take a fictional example.
An investor has $10,000 in their margin account. Their broker gives them a 2:1 leverage. What does this mean? The investor can now access $20,000 but with an interest rate. We are all aware that trades can be profitable and unprofitable. In the former case, the investor and the broker are happy when stocks go up. However, in the latter case, the investor can find themselves in some trouble.
Let’s say that $20,000 is used to buy a stock trading for $50. After a few days, it drops to $25. In a cash account, it is a 50% loss, but in a margin account, it is a 100% loss. Remember that $10,000 the broker lent to the investor? That is all that remains in the account. The broker will pull the plug on the trade unless the investor sells the position or adds more funds into the account. Now, the investor lost all their capital and owed interest on top of that.
Forced Liquidation
Under which terms can a broker liquidate your position when they are owed money? These terms are outlined in the initial agreement. If there isn’t a good cash position in the account, brokers can liquidate other positions to recoup the money they are owed.
Pro-tip, don’t wait for that to happen. Instead, meet the margin requirements (funds borrowed + interest) ASAP and keep your broker happy.
Is there a method for picking positions to liquidate? Unfortunately, it can be done randomly, in alphabetical order, or any other order. All this without consulting the investor. Can a broker sell your investments without your permission? According to the margin agreement, yes, they can.
Best Brokers for Margin Accounts
Every broker sets its interest rates for margin trading. Below is a list of major financial institutions that offer margin trading. Rates are based on account sizes between $100-250k. Therefore, lower account balances may be subject to higher rates. Interactive Brokers Plus, M1, and Robinhood, offer a flat rate regardless of the account balance.
Since the beginning of the year, many brokers have increased their rates due to interest rate increases by the FOMC. As a result, cheaper brokers may not offer the best services. Sometimes, paying more for a better platform and service can be advantageous. We have an article outlining the best platforms for each type of investor.
Interactive Brokers Pro: 2.58%
Interactive Brokers Lite: 4.08%
M1 Plus: 2.00%
M1 Finance: 3.50%
Robinhood: 4.25% (Take a look at our RH reviews here and here)
Webull: 5.99%
TastyWorks: 6.50% (We have a good article about the platform here)
Fidelity: 8.325%
Schwab: 8.325%
Vanguard: 8.50%
Etrade: 8.95%
TD Ameritrade: 9.25% (ThinkorSwim has an amazing platform reviewed here)
Did Robinhood Sell Investors Stock Without Permission?
What type of brokerage does Robinhood operate as? It is a non-discretionary or self-directed broker. By definition, Robinhood can’t perform any transactions on cash accounts without the consent of its customers. However, Robinhood can sell stocks in a margin account when its clients don’t meet requirements.
Many investors using Robinhood’s platform argued that their shares were illegally liquidated. An investigation was launched, concluding that Robinhood did everything legally. Some margin accounts were indeed liquidated, but all were within legality.
Robinhood did, however, freeze the purchase of many meme stocks during the early months of 2021. However, that is a different story. These actions may have been illegal and broken many free market aspects, but they are unrelated to liquidating positions.
A Broker Can’t Sell Your Investments Without Your Permission, Unless…
Brokers cannot liquidate a client’s position unless it is a margin or discretionary cash account. Most clients do not own a discretionary account. They operate non-discretionary (self-directed accounts). If your broker sold your position without your consent, contact them and demand the reason why. However, brokers can liquidate margin accounts when the requirements aren’t met. They can randomly choose which position to sell. Margin account holders must familiarize themselves with these conditions to avoid unpleasant surprises.
Related Articles
Broker Arbitration and Mediation
December 8, 2023
Losing money in the stock market never feels good. But what if the cause of it was your broker? More specifically, negligence on their behalf
Read More »
Cost of Capital Stock Formula Explained
October 11, 2023
Let’s say you’ve got a new, hot idea; the next best thing since sliced bread. You’ve got one problem: you need lots of money to
Read More »
Floating Stock Definition
September 4, 2023
Have you ever noticed companies with large bid-ask spreads? There is a significant difference between a stock’s buying and selling price. What is the reason
Read More »
Securities and Exchange Commission (SEC)
August 25, 2023
The SEC, or The Securities and Exchange Commission, is an independent federal regulatory agency that protects investors and capital. With headquarters in Washington, D.C., and
Read More »
Risk Reward Profile When Investing
August 18, 2023
One question I always ask myself before committing to time, money, or other resource is this: what will I get out of it? Simply put,
Read More »
Trading Rules
Broker Arbitration and Mediation
Read More »
Bullish Bears April 15, 2024
Trading Rules
Cost of Capital Stock Formula Explained
Read More »
Angelica Rieder April 16, 2024
Trading Rules
Floating Stock Definition
Read More »
Bullish Bears April 17, 2024
Trading Rules
Securities and Exchange Commission (SEC)
Read More »
Lucien Bechard February 24, 2024
STOCK TRADING SERVICE
Our chat rooms willprovide you with an opportunity to learn how to trade stocks, options, and futures. You’ll see how other members are doing it, share charts, share ideas and gain knowledge.
Our traders support each other with knowledge and feedback. People come here to learn, hang out, practice, trade stocks, and more. Our trade rooms are a great place to get live group mentoring and training.
TRADE ALERTS “SIGNALS”
The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members.
These alert signals go along with our stock watch lists. Our watch lists and alert signals are great for your trading education and learning experience.
We want you to see what we see and begin to spot trade setups yourself.
REAL-TIME STOCK ALERTS SERVICE
We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish.
Our stock alerts are simple to follow and easy to implement. We post entries and exits.
Also, we provide you with free options courses that teach you how to implement our trades as well.
STOCK TRAINING DOESN’T NEED TO BE HARD
Stock training doesn’t need to be hard. But it sure feels hard when you don’t know where to turn for legitimate knowledge. There are tons of places to learn, but what makes us different?
Well, for starters, we’re just real everyday people who like trade stocks. We’re not gurus portraying a fancy lifestyle of cars and jets and beaches. Can you obtain those things with what we teach you? Sure you can. Is that what motivates us when teaching you how to trade?
Nope. What we really care about is helping you, and seeing you succeed as a trader. We want the everyday person to get the kind of training in the stock market we would have wanted when we started out.
WHY WE’RE DIFFERENT
What else makes us different? When it comes to the stock market, we’ve won, we’ve lost, we’ve lived, and learned. We’ve been through the ups and downs in the market and figured out what really matters. The Charts…Candlesticks = PRICE ACTION! We’ve created a site that passes all this knowledge on to you.
We don’t charge you an arm and a leg for the stock training we give you. We charge a modest amount that goes towards running our day-to-day operations and paying for our invaluable team moderators that are passionate about teaching YOU!
That’s about it. We could charge more, but we have a pay it forward, give back mentality. It’s not about the money. The best and most important thing for us is YOU. We want to feel good about what we do, and the results and reviews speak for themselves.
Those emails we get, the feedback, the success we see. That is what our educational trading community is all about. We hold no secrets back. Our trading edge is your trading edge.
STOCK TRAINING DONE RIGHT
We don’t care what your motivation is to get training in the stock market. If it’s money and wealth for material things, money to travel and build memories, or paying for your child’s education, it’s all good. We know that you’ll walk away from a stronger, more confident, and street-wise trader.
In our stock trading community, you’re going to get it all. Futures, options trading, and stocks. Not just penny stocks either. Small, mid, and large caps. Each day we have several live streamers showing you the ropes, and talking the community though the action.
There’s no catch, no smoke or mirrors. What you see is what you get. If you’re looking to change your life, or someone else’s, we’re here to help you reach that goal. Get started learning day trading, swing trading, options, or futures trading today!
Click Hereto start your 7-day free trial.
TRADING STOCKS IN THE BULLISH BEARS COMMUNITY
Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market.
Tell you the TRUTH about how the market works. The importance of controlling your emotions and having a proper mindset when trading. We’re really passionate about teaching you this stuff!
Money isn’t our #1 priority in life. YOU are. Our members come first. Making sure you get comfortable with trading is our priority.
We have members that come from all walks of life and from all over the world. We love the diversity of people, just like we like diversity in trading styles. It creates an environment much like a university or college.
TRADING ROOMS AND LIVE STOCK TRAINING
Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. Our live streams are a great way to learn in a real-world environment, without the pressure and noise of trying to do it all yourself or listening to “Talking Heads” on social media or tv.
We will help to challenge your ideas, skills, and perceptions of the stock market. You will learn and grow as a trader. Every day people join our community and we welcome them with open arms. We are much more than just a place to learn how to trade stocks.
Feel free to ask questions of other members of our trading community. The Bullish Bears are a very helpful crew. We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for. To give you a hand up along your trading journey.
Click Hereto try our trading community free for 7 days.
FREE ONLINE TRADING COURSES
If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.
We are opposed to charging ridiculous amounts to access experience and quality information.
That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too!
On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.
We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.
Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.
It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.
Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person!
STOCK TRADING COURSES FOR BEGINNERS
The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.
If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered.
We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.
Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.
Click Hereto take our free courses.
