The National Association of Securities Dealers today issued an updated Investor Alert warning investors about the risks associated with trading on margin.

The regulator reports that since the release of a previous alert on this topic in 2003, the amount of debt taken on by investors to buy securities has reached a record high of US$321.2 billion, as of February 2007.

“We are concerned too many investors are unaware they could suffer substantial financial losses by using debt to purchase securities,” said Mary Schapiro NASD chairman and CEO. “By updating our alert on this topic, we hope to remind investors not to underestimate the risks involved.”

The alert explains that investors who cannot satisfy margin calls can have large portions of their accounts liquidated under the market conditions at the time. That liquidation can result in substantial losses.

It notes that some of the risks associated with opening a margin account explained in the alert are: firms can force the sale of securities in accounts to meet a margin call, firms can sell securities without contacting the account holder, account holders are not entitled to choose which securities or other assets can be sold, firms can increase margin requirements at any time and are not required to provide advance notice, account holders are not entitled to an extension of time on a margin call, account holders can lose more money than is deposited in a margin account, and account holders should ask whether they will automatically be placed into a margin account and, if so, what the rate of interest will be and what circumstances would trigger a margin loan.

Along with explaining the risks involved with margin, the alert provides some basic facts about purchasing securities on margin and where to turn for help.