Who's your broker? Meyer Lansky, Bugsy Siegel or Charlie Luciano? Of course, if you're not familiar with these three guys, you should be. They were famous gangsters. In fact, Charlie Luciano once visited the floor of the New York Stock Exchange, looked around and said, "I got into the wrong business.”

Margin is one of those mysterious, behind-the-scenes, gangster-type vehicles that can bleed you dry if you're not careful. Margin should only be used by speculators who want to borrow money from a brokerage firm to buy more stock.

To simplify my explanation, here's how margin works: If you have $50,000 worth of securities or cash, the brokerage firm will allow you to borrow an amount up to $50,000. If your account should drop in value after borrowing the money, your broker will call you and tell you to deposit more. During the 2000 market meltdown, many investors on margin went broke. Imagine having a $50,000 account, borrowing $50,000 on margin, and watching the stock market drop 50%. Your $50,000 is gone and the brokerage firm is going to take the $50,000 that's left. Even worse, if you were 100% in tech stocks during the meltdown, your account dropped 80%. Now the brokerage firm is out some money and they will take you to court to recoup their loss.

Margin sounds pretty bad doesn't it? Huh, wait until you see this. For an investor to agree to margin they must sign a "Margin Agreement.” I urge you to read the agreement carefully and bring a magnifying glass with you. Before signing, hire a really good lawyer. Better yet, go hire a shrink, because you have to be completely out of your mind to allow a brokerage firm to do all the things they say they can do in the "Margin Agreement.” Here's some of their legal mumbo jumbo:

"In return for (name of firm) extension or maintenance of credit in connection with this account, the client acknowledges that (the firm) and is successors are authorized in the usual course of business to LEND, RE-LEND, PLEDGE, or RE-PLEDGE separately or together with the property of others, either to (Firm) or others, and property which firm may carry for client on margin."

Here's the actual translation of the above paragraph:

1) We will loan you money to buy more stock and charge you interest on the loan.

2) We can loan your stock in your account to short-sellers, and hedge funds, receive commissions on your shares as we loan them out, charge interest on their margin accounts, and loan your shares to other brokerage firms.

3) We can use your stock as collateral at a bank for our benefit.

The bottom line is that margin accounts are a huge business for brokerage firms. Brokerage firms are coming up with very subtle, non-threatening ways to get you to agree to margin. One very sneaky way is getting clients to agree to sign up for check writing and debit card services. By signing up for these services, investors are also agreeing to margin their accounts. My recommendation to you is to stay away from margin.