This situation is orthogonal to what's predatory. Its predatory that they generally encourage customers to front more than they realise they're fronting. Many customers think they're betting £1000, they don't realise they're actually betting their house.
> Its predatory that they generally encourage customers to front more than they realise they're fronting.
This isn't entirely true. Margin accounts don't have an unlimited bottom. If you put $1000 in a margin account, you can buy more than $1000 worth of securities. As soon as the value of those securities drops below $1000, those shares are liquidated. Typically, you are never on the hook for more than your initial $1000.
From Investopedia:
> " The Federal Reserve has a 50% initial margin requirement, meaning you must front at least half the cash for a stock purchase.
> This requirement gives you the ability to purchase up to $20,000 worth of stock, effectively doubling your purchasing power."
It is very risky to invest in volatile stocks with a margin account because you can hit a margin call fast. Suppose you put $2000 into RH and get $2000 worth of GME. If GME drops 50% in a day (highly possible), you get a margin call and poof your $2000 is worth zero.
> Many customers think they're betting £1000, they don't realise they're actually betting their house.
This isn't true on either part. To see why, take a peek at RH's FAQ on margin: "Access to margin is not automatic to everyone, and requires you to upgrade to Gold."
In other words. To make leveraged purchases, you have to deliberately upgrade your account to gold and have $2000 in your account. The whole reason people upgrade to gold is to get access to margin.
It is possible to put yourself out there quite a bit further than you want and lose everything you invest, but it's pretty hard to lose more than you invest. (I'm not even sure it's possible).
