Do You Owe Money to the Broker if your Stock Value Goes Negative?

You could owe money to your broker if you used leverage to acquire more shares than you could have bought with the money in your account. Otherwise, if you bought the stocks with your own money, you will not owe your broker money if their value goes down.

Remember that the value of a stock cannot go below zero, which is why you will never owe your broker money even if a company declares bankruptcy.

Investors who buy stocks using leverage, also known as margin, may end up owing their brokers money if the value of their shares goes down because the broker loaned them money to buy more shares than they could afford.

Options traders may also end up owing their brokers money if the value of the stocks they sold options on falls or rises depending on whether they sold put or call options.

If you decide to sell options, make sure you sell covered calls and puts, this means that you only sell options on stocks you own.

As a retail trader, it is best to avoid using leverage (margin) by choosing a cash account instead of a margin account. We all know stories of professional fund managers who used too much leverage and lost a lot of their client's money.