# Margin lending questions



## stocknoobie (24 November 2005)

hi everyone

I am thinking of opening a margin lending account, but don't know if it's a bit risky since i only started trading 1 month ago. Plus i got alot of questions about margin lending accounts, such as brokerage rate for margin lending account, minimum loan and how do they calculate interest rate? For example if i buy a stock then sell it with in a month, how much interest will the lender charge? Thanz if anyone at least show me how to obtain more information.


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## money tree (24 November 2005)

*Re: Margin Lending*

margin lending is an uneconomical and inefficient means of gearing into the market.

second, now is not the time to be getting in.

third, you need a lot more experience.


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## tech/a (24 November 2005)

*Re: Margin Lending*

Leveraged trading is not for the complete novice,here I agree with TREE.
The other 2 points of Tree's are opinion with some truth to both.
But--

Ive traded Margin for 4 years and have found it a hassel free way to leverage positions.
Firstly you will only be able to trade stocks listed on the lenders Margin List.
Loan Ratios will vary from 45% to 75% on average--meaning that any one stock of a 75% lending ration can only carry 75% of your total portfolio.
Lending Ratios are never a problem with a portfolio of 10 stocks equally weighted.
Interest rates vary and are a few points cheaper paid up front (I dont ).
Interest is calculated only on the funds used when they are used.
EG you have 50K as security and have 50K of Stock trading---with the ability to buy another 70K on margin.
Currently you would not be paying interest and would only pay the interest on funds over the 50K on a daily rate while they were used.


Your lender will have a minimum level they will allow your portfolio to fall to and if it does you will get a call from your broker (A Margin Call),so lets say your portfolio has fallen 22% and your call level is 20% you will be asked to make good the 2% and the 5% buffer. You can either pay cash----or sell some stock,hock the mother in law,or walk the streets may work for some!!
To bring your account in order.

I use BT (Bankers Trust) and St George. both have net sites.
Unlike Tree I find Trading Margin excellent for my form of longterm trading.
Find a good broker---I'm currently looking at Morrisons as I'm sick of paying $100s in and out of trades from brokers,who simply place a trade.

*Margin Lending Explained Paul and Jorrod Martin ISBN0 701636440 is a good read.
Mastering Risk Mike Lally ISBN 0 7016 3667 X is also a must read for you.*

Think minimum margin capital is $15,000.


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## dutchie (24 November 2005)

*Re: Margin Lending*

Money Tree

Could you explain why "margin lending is an uneconomical and inefficient means of gearing into the market"?

What is a more economical and efficient means of gearing?

Thanks


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## RodC (24 November 2005)

*Re: Margin Lending*

Like tech/a I've found margin lending an excellent way to leverage positions.

I've been using margin lending for about 4 years, without any hassles.
Never had a margin call, though I have been into the buffer a couple of times.

I use Comsec and BT.

I know with comsec if your overall portfolio LVR is low enough then you can buy stocks not on the margin list though of course these don't have any lending value so your effectively using your own funds.

Interest is paid daily on open positions, so if you've purchased $10K of a 70% LVR share you'll be paying interest on $7K for each day you hold the stock.

Rod.


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## clowboy (24 November 2005)

*Re: Margin Lending*

ROD,

I don't use comsec so I cant be 100% sure on this (it is correct for BT though).

BT (and i think commsec) have minimum loans of 20k for margin lending so if you only have a loan balance of 7k you will still be charged on the full 20k

Double check your charges to the account and see if I am right.


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## mime (24 November 2005)

*Re: Margin Lending*

Remember with margin lending a 20% fall in stock price could mean 100% of your capital. However a 20% rise could mean a rise of 50%+ jump in your capital. 

Gearing is probably the only realistic way to make alot of money on anything investment. Property or stocks.

Just a thought. Borrowing on those interest free credit cards for short term trading might not be such a bad idea :|


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## RodC (24 November 2005)

*Re: Margin Lending*



			
				clowboy said:
			
		

> ROD,
> 
> I don't use comsec so I cant be 100% sure on this (it is correct for BT though).
> 
> ...




Yes, you're right.

BT certainly have that. It doesn't apply initially, so that when you first draw down on the loan you only pay for what you use. But once your loan exceeds $20K then that becomes the minimum for interest calculations.

I don't know about comsec and I can't be bothered checking as it's not applicable to me given my loan balance has never been that low.

Rod.


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## money tree (24 November 2005)

*Re: Margin Lending*

the LVR with margin loans is quite low (30 - 50%). Interest rates usually contain a premium. High risk of margin call.

alternatives:

LEPOs:

very high LVR (95 - 98%)
lower interest 


INSTALMENT WARRANTS:

no risk of margin call
same LVR as margin loan
limited risk


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## rozella (24 November 2005)

*Re: Margin Lending*

I agree with tech/a's explanation.  I rarely trade without margin, however when I first started, I would not exceed 80% of the available credit, now I trade in the buffer zone more times than not (103%).  It is a matter of comfort zone & knowing the rules, I operate with 10 to 15 stocks as ideal, using my maximum risk amounts with each stock.....I sleep at nights.

Marginlending is a great teacher of discipline.  I have never had a margin call with a conventional lender, but I have heaps of times in the past with cfd's, which I don't use anymore.

The nearest I have had to a margin call, & I was in the buffer zone with 3 ML accounts, was the "September 11th 2001" but was able to work my way through it, selling down over a few days, & coming well out on top during October 2001 (still my best month ever)

I think "you do best, what you know best" , whether its installment warrants, or marginlending.  I prefer the latter.....but that is my opinion.

Whichever leveraging you use, you still have to have a consistantly winning strategy, as leveraging magnifies both wins & losses......leveraging does not make you win.


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## mit (24 November 2005)

*Re: Margin Lending*

I was looking at an ASX50 company awhile back the total volume it traded for the month for a particular installment warrant was less than the volume I wanted to buy. I also noted that the spread was quite large as well. Note that Installment Warrants also have a call option and the entire loan priced in, so that needs to be taken into account if you want to see if the warrant is fair price against the underlying share. I'm thinking of using Installment warrants to buy some solid bluechips when we have a major correction and just put them in the bottom draw. Aren't most installment warrants 50%?

I use Commsec for margin loans and found it great. I find that my portfolio on average allows a maximum lending ratio of around 68% (before the buffer). I keep my LVR at around 60% which is a good buffer. I'm of upping my limit as even during the October downturn my LVR never went above 63% before my stops kicked in.

 I like the fact that as your position grows you can take capital out, without needing to sell. When I reach the size position I need, I plan to use this to draw a constant value out of the account monthly while keeping a constant position size and the LVR changing taking up the normal ups and downs in trading.

MIT


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## RodC (24 November 2005)

*Re: Margin Lending*

I run my portfolios pretty close to the buffer most of the time. I just checked them then and the Comsec Loan is at 66.92% out of a maximum 68.81% and the BT loan is at 67.67% out of a maximum 71.49%. I have a few 75% LVR stocks in both portfolios and generally don't buy anything with less than 60% LVR.

As I said earlier, I've never had a margin call and have only been in the buffer (just) a couple of times.

I do occasionally use instalment warrants, but as mit said liquidity and spreads can be a problem.

Rod.


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## BraceFace (29 November 2005)

*Re: Margin Lending*

I use a Macquarie Margin Lending account for my Blue Chip (read - Low Risk) share portfolio. Generally they dont lend on speccie stocks anyway. I use 100% of my own cash via an online trading account (low brokerage) if I am investing in anything remotely speculative.
Anybody who knows anything about making money will tell you "you have to use other people's money to make money". Gearing in the sharemarket is just as safe as gearing in real estate - you just have to be sensible about what you invest into. Dont borrow money to invest in speccie stocks unless you are prepared to take a big hit.
My 20c


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## rozella (30 November 2005)

*Re: Margin Lending*

Another positive for marginlenders is that they are the chess sponsor of your shares, so therefore you can have as many brokers as you like, providing the marginlender deals with them, as it is important to have a broker backup if they have IT problems......such as Sanford atm.  You can change brokers very quickly as there is no stockholding transfers to be done.


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## RodC (1 December 2005)

*Re: Margin Lending*

that's interesting Rozella. I hadn't thought of that.

I just use comsec for my comsec loan and westpac for the BT loan.

Rod.


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## rozella (1 December 2005)

*Re: Margin Lending*

Rod,

You could also open a basic account with Etrade, which is linked online to BT, & it costs nothing for a backup.

I don't know about comsec


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## It's Snake Pliskin (2 December 2005)

*Re: Margin Lending*



			
				dutchie said:
			
		

> Money Tree
> 
> Could you explain why "margin lending is an uneconomical and inefficient means of gearing into the market"?
> 
> ...




Try CFD's.


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## RodC (2 December 2005)

*Re: Margin Lending*



			
				rozella said:
			
		

> Rod,
> 
> You could also open a basic account with Etrade, which is linked online to BT, & it costs nothing for a backup.
> 
> I don't know about comsec




thanks Rozella, I may look into that.

I'm not too worried about having a backup for the comsec loan as that's my "longer term" account anyway.

Rod.


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## mit (2 December 2005)

*Re: Margin Lending*



			
				Snake Pliskin said:
			
		

> Try CFD's.




Depends on your trading style. If you have low capital or are only trading short term on the largest companies* then CFDs are the way to go 

If you hold a portfolio of stocks for more than a couple of weeks I don't think you can beat a margin loan because, you only pay interest on the amount you owe and the interest drops as your position grows unless you borrow more funds. We have had a few pretty good years but if next year is flat then an effective extra interest of 3% on the total position size which translates  to 9% against your capital could be a very large bite from your returns.

* This is if you aren't using DMA .I have been doing some short term stuff in CMC with LNN and ORG and the spread can get up to 7 cents and these aren't exactly small companies. This is an effective additional brokerage of 70 dollars for a $7k position. I noticed the problem more with fills and estimate that I would have returned 20% more if I had used margin or DMA. I've just joined Macquarie and am waiting for my password to start trading with them.

MIT


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## Milk Man (2 December 2005)

*Re: Margin Lending*



			
				mit said:
			
		

> ....I've just joined Macquarie and am waiting for my password to start trading with them.
> 
> MIT




Let us know how you gowith them, im going to sign up with either macquarie or man/e-trade in the next few weeks. What swayed you to macquarie?


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## stocknoobie (11 December 2005)

*Re: Margin Lending*

Thankyou very much for all of ur valuable comments and suggestion. However some ppl may missed the topic ... i am not after any information on how a margin lending account works, such as the risk involve in margin lending, we all know investment does come with a degree of risk, i mean any investment. The information i want to know, like how many percertage increase of the total investment portfolio with a margin lending account compare with a normal cash trading account over a certian period of time .... if anyone else can post an actual example of how they use a margin lending account and the amount of return they made during a period of trading.  I am trying to be a active trader, so i want more money to invest and maximise the return on my investment portfolio. finally most people posted some very good information and data, however some ppl may need to rethink before they posted it, else it's a waste of our times and keep reading useless stuff. once again a big thankyou all.


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## rozella (11 December 2005)

*Re: Margin Lending*

stocknoobie,

This is a marginloan spreadsheet that was commenced on 1st July 2004, starting with $75000 working capital.

It shows 2 results.
1. From 1st July 04 to 9th December 05 (527 days)
portfolio has increased $60385.38 (80.51%)

2. From 1st July 05 to 9th December 05 (162 days)
portfolio has increased $25663.12 (23.39%)
pending dividends to be paid not incl above $5590.19
cash in hand $$65770.13
purchases in the 162 days 71
wins 40
losses 20
open trades 11

Comments: portfolio has come off its high from 2 weeks ago due to a number of stocks being quoted exdiv & also this last week saw the banks take a tumble, which were sold after reaching trailing stops, however the pending dividends will be all paid by the 21st Dec which will boost the portfolio.

Transactions are supported by Margin Trading 2 and Trading Diary 2


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## rozella (11 December 2005)

*Re: Margin Lending*

stocknoobie,

You ask for a comparison with a normal trading account....well this is difficult because you would be using approximately one third of portfolio size, so it would affect your buying decisions.  For a direct comparison you would need to trade all the same stocks with your position size scaled down to about one third used in the margin trades.

Margin loans are usually between 7.9% to 8.5%, & I have used 8.4% in the example which with the brokerage is capitalised to the loan.

So therefore the additional stocks you can buy because of marginlending must cover the compounded interest bill.....in the example it is well covered.

Is this the type of info that you are after ?


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## BraceFace (13 December 2005)

*Re: Margin Lending*



			
				stocknoobie said:
			
		

> The information i want to know, like how many percertage increase of the total investment portfolio with a margin lending account compare with a normal cash trading account over a certian period of time .... .




Unless I missed something in your question, I think the answer is quite simple....

Your portfolio will increase by exactly the same percentage, regardless of whether you have a margin loan or just a cash account.
The BIG difference is with a margin loan your entry point is higher. In other words X% increase (or decrease) in a small amount of money, is only a small amount of money but X% of a lot of money (like that borrowed in a margin loan) is a lot of money. Thats how gearing works - you start with more investment capital, you stand to make a larger profit or loss than with a small amount of cash of your own. 
The actual % increase is exactly the same.

Obviously this equation sarts getting a little clouded when you start factoring in Interest on the Margin Loan, Dividend reinvestment etc, but you are still better off if you can borrow money to gear up your investment.
But like I said in my last post - be prepared to take a hit if you invest borrowed money in speccies. Not a good idea IMO.

Cheers


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## The Barbarian Investor (29 December 2005)

*Re: Margin Lending*



			
				BraceFace said:
			
		

> I use a Macquarie Margin Lending account for my Blue Chip (read - Low Risk) share portfolio. Generally they dont lend on speccie stocks anyway. I use 100% of my own cash via an online trading account (low brokerage) if I am investing in anything remotely speculative.
> Anybody who knows anything about making money will tell you "you have to use other people's money to make money". Gearing in the sharemarket is just as safe as gearing in real estate - you just have to be sensible about what you invest into. Dont borrow money to invest in speccie stocks unless you are prepared to take a big hit.
> My 20c




Just thinking when I read this, how about if you used the equity in your house rather than a Margin Loan (No nasty calls and a lower Interest rate to boot?)

Also, even if you did get a Margin Loan (say at 8.5% interest) and invested in several Blue chips rather than traded (say you were looking to get a 10% return for the year on your monery through dividends, notwithstanding any price increases) would this be worth looking at for someone looking to get into the market and invest??


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## tech/a (29 December 2005)

*Re: Margin Lending*

Barbarian

This is what I have done,for 3 yrs with techtrader.

My idea (in the future)was to take a % of equity from each property I have and invest it in a portfolio.I was going to trade 3 different methods.
Techtrader,Stevo's Bollinger Band Weekly method and Rossellas dividend stripping.

Now with the advent of CFD's rather than having to take 30-50% out on a line of credit from a property,I only need 10%.
The other thing I wish to point out is you dont have to and shouldnt leverage yourself to the max (In my veiw).
While I may have $200K equity in a Property I will only use a max(In my case) of 30% of that.So when trading CFD's,I'll only be trading $70K from that Property,costing me $7000 to the provider.You'll need to have a line of credit that will allow you to get to the $70k if all falls in a hole.

Margin calls are a great wake up call in my view.I've never been called.
But if your method of trading has you lose enough to be called and that loss is lower than the maximum initial drawdown of the method your trading---then it needs to be halted trading and reveiwed.
*And if you dont know these figures---what are you doing trading leveraged instruments???*

To me having your capital locked away in equity while comforting is wasteful.
However if your going to release it you really need to be right on top of the numbers.


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## tech/a (29 December 2005)

*Re: Margin Lending*

Meant to include above.

Knowing the initial capital drawdown then you can leverage to a comfortable level.For Techtrader thas 2:1 so my $70K leveraged 2:1 would require $14,000 to the provider.Which means that if the 8.6% maximum was reached then the $14,000 would cover it.EG $140K*9% = $12600.


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## rozella (29 December 2005)

*Re: Margin Lending*



> Margin calls are a great wake up call in my view.I've never been called.
> But if your method of trading has you lose enough to be called and that loss is lower than the maximum initial drawdown of the method your trading---then it needs to be halted trading and reveiwed.
> And if you dont know these figures---what are you doing trading leveraged instruments???



Exactly right tech/a.  The marginlender is like big brother making sure that you do your job correctly.  If you have allowed your stocks to fall to warrant a margin call, then you are pretending to yourself.  The marginlender is saving you from further loss if you have a margin call.

I wonder how many bought TLS @ 850.0 approx, & still hold at 396.0.  If you bought this on margin, there is no way you would still own it.  You would have been asked to "cough up" or sell.  Even if you had other stocks propping it up with margin, TLS would have weighed heavily & you would have sold at 600.0 at the lowest (guess)

Marginlending teaches you discipline.....how to keep a tidy portfolio.


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## BraceFace (13 January 2006)

*Re: Margin Lending*



			
				The Barbarian Investor said:
			
		

> )
> 
> Also, even if you did get a Margin Loan (say at 8.5% interest) and invested in several Blue chips rather than traded (say you were looking to get a 10% return for the year on your monery through dividends, notwithstanding any price increases) would this be worth looking at for someone looking to get into the market and invest??





Don't forget that the costs of your running your investment are fully tax deductible (including the 8.5% interest).....

I also agree that having someone tap you on the shoulder and say sell something or cough up some cash (ie margin call) is a good way to make you reevaluate you investments.


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## BraceFace (13 January 2006)

*Re: Margin Lending*



			
				The Barbarian Investor said:
			
		

> )
> 
> Also, even if you did get a Margin Loan (say at 8.5% interest) and invested in several Blue chips rather than traded (say you were looking to get a 10% return for the year on your monery through dividends, notwithstanding any price increases) would this be worth looking at for someone looking to get into the market and invest??





Don't forget that the costs of your running your investment are fully tax deductible (including the 8.5% interest).....

I also agree that having someone tap you on the shoulder and say sell something or cough up some cash (ie margin call) is a good way to make you reevaluate your investments.


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## quinn123 (25 February 2009)

Hi,
I have been doing some reading on margin lending and I believe negative gearing may suit my current financial position and investment goals.  

I’m a young professional (23 years old) with a relatively stable income.  I have been researching the share market for approximately a year, and have made some small share purchases over the last 3 months.  

I’m only interested in mid-long term investments (5< years) rather than share trading.  My current financial standing allows me to take on increased risk.      

If I do decide to take out a margin loan it will most likely be with *Commsec*.

On the Commsec site they always use an example where someone buys a single stock that is listed on their approved shares list with a certain lending ratio which gives them the appropriate lending value for which they can borrow or choose to decrease for a larger buffer from margin calls.

*My first question is:*   If I wanted to take out a margin loan and diversify between a number of companies, how will the margin loan be initiated?  Are you required to have already invested in an approved share (on commsec’s site with a particular lending ratio) to use as security for the loan?  Than you can use the loan from that approved share to invest in whatever you like?  Or is it possible to start off with cash?  

E.g.
If I wanted to open a margin loan using BHP shares as security, and BHP contains a $30 share value and a lending ratio of 70%.   If I wanted to borrow $50000.00 I would have to obtain 2381 BHP shares worth $71428.57, and I would be liable for 30% of that which would be $21428.57 (714 BHP shares).  

But this forces me to purchase a lot of shares of one company, so do you just do this in smaller amounts for a number of companies if you wanted to diversify?  

*My second question is:*  Are LVR (loan value ratio) and Lending value the same thing?  How does it get calculated in a diversified portfolio?   Does it just get calculated for every share separately that you have applied for a margin loan or is it somehow a total market value of your share portfolio?  

E.g.
If I include the above example with BHP and I chose to borrow $50000 dollars and invest in other companies, how does the lending value get calculated, because the market value of the other shares would vary?  So I’m basically confused as to how you manage the margin loan LVR in terms of avoiding margin call in a diversified portfolio.  

If anyone can clear some of this up that would be greatly appreciated.  

Cheers,

Quinn


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## Naked shorts (25 February 2009)

Are you feeling confident about keeping your job? I mean really confident?


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## quinn123 (26 February 2009)

I'm not "really confident", but I should have stable employment for this year.  Than hopefully by then things begin too pick-up, so I can be really confident.

If I got into a margin loan in 2007, when confidence and employment were high, this crash would have affected my portfolio.

If you are suggesting that it is a bad time to consider leverage due to the current volatility, I agree   I'm planning to wait until there is increased market sentiment.

Thanks for the reply, but I don't want to discuss market timing.  If someone can answer my questions that would be handy for me, and probably others as well.

Thanks


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## quinn123 (26 February 2009)

I wrote up another example to show the problem I’m having.  This is just an example and completely made up.

E.g.
If I wanted to take out the following Margin loan with the following securities:

Security____LVR____Amount of shares purchased________LV 
BHP_______70%_________$5000_____________________$3500
BPT_______60%_________$5000_____________________$3000
FXJ_______70%__________$5000_____________________$3500
					 Total LV -  	$10000
LVR – Loan Value Ratio
LV – Loan value

That would leave me with a total lending value of $10000.  Than say I chose to invest in the following portfolio:

Company_____Amount of shares purchased
BHP______________$5000 
BPT______________$5000
FXJ______________$5000
ROC______________$10000 (not on accepted securities list)

At time of purchase I have:
Portfolio market value - $25000
Loan Balance - $10000
Loan Value - $10000 (5% Buffer - $500)

Than say BHP drops from share price of $40 (my purchase price) to $20 on 1st March ’09 but all my other shares stay the same.

On 1st March ‘09:
Portfolio market value - $22500 (reduced in value)
Loan Balance - $10000 (hasn’t changed)
Loan Value - $8250 (5% Buffer - $500) (reduced in value)

So because I have not payed off any of my loan yet and my loan value on 1st March ’09 with the buffer is $8750 (my LVR is really 66.66667% for my total portfolio).  I would have to pay at least $1250, taking the buffer into account, to meet my loan balance and get out of the margin call. 

One thing I still don’t understand is what if *ROC* fell in price, which is not a secured share (not on approved list of shares), but just a share I bought with the loan money?  Is it only securities that have an LVR that can affect the LV price?  I must be missing how the portfolio value is linked to LV or something.

Thanks


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## mattlaw (26 February 2009)

Hi quinn you should check out this thread for and answer.
https://www.aussiestockforums.com/forums/showthread.php?t=14370


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## Knobby22 (26 February 2009)

If ROC fell in value, it would have no effect as you are not using any equity from it to fund the margin loan.


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## quinn123 (26 February 2009)

Knobby22 said:


> If ROC fell in value, it would have no effect as you are not using any equity from it to fund the margin loan.




OK makes sense now.  Cheers for the link also Mattlaw.


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## Trevor_S (26 February 2009)

quinn123 said:


> If I got into a margin loan in 2007, when confidence and employment were high, this crash would have affected my portfolio.




IMO 
1. Run conservative LVR's (<40%) (I typically run less then 30%)
2. I see no sense in making a loss and "hoping" for a CG to compensate, the market could be flat for years (but then it might not be  )  You can still claim your interest payments as a tax deduction and assuming you are on a tax rate of 30% and you have fully franked shares, then your franking credits credits should cover tax on the dividends ( I see Mr K Henry is advocating we remove dividend imputation altogether, so who knows what will happen).  

I would be ensuring I was positively geared (div's are falling so watch the calcs there), also helps if you do lose your job, as the dividends pay the loan and you get the franking credits paid to you as a tax refund... lots of low PE, high dividend paying stocks with the "potential" for CG, work with those

3. Use your existing shares as equity but remember they can sell them out from under you if you get a margin call. See note 1 above.

or consider buying a house, using the FHBG and renting a room out for extra cash to pay it own more quickly.

Best of luck to you...


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## quinn123 (26 February 2009)

Trevor_S said:


> IMO
> 1. Run conservative LVR's (<40%) (I typically run less then 30%)
> 2. I see no sense in making a loss and "hoping" for a CG to compensate, the market could be flat for years (but then it might not be  )  You can still claim your interest payments as a tax deduction and assuming you are on a tax rate of 30% and you have fully franked shares, then your franking credits credits should cover tax on the dividends ( I see Mr K Henry is advocating we remove dividend imputation altogether, so who knows what will happen).
> 
> ...




Thanks for your input, I'm sure it would make more sense if I new what CG meant though  

Thanks


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## beamstas (26 February 2009)

quinn123 said:


> Thanks for your input, I'm sure it would make more sense if I new what CG meant though
> 
> Thanks




CG is capital gains


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## quinn123 (26 February 2009)

beamstas said:


> CG is capital gains




I knew it would be somthing obvious


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## tech/a (26 February 2009)

Hardly anyone uses Margin correctly.

This thread is a perfect example.
Radge taught me how and many others and its not seen here.

I wont devulge his teaching unless he allows it or is willing to share it.

But needless to say---correct use takes away the Risk people needlessly place them selves in with margin---all types.


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## quinn123 (26 February 2009)

Well I hope Radge decides too post.  I would like to learn how to properly manage a margin loan.


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## Ardyne (26 February 2009)

Another way to do it is 

(very close but only approx values used)

eg anz pay a dividend of $1 per share fully franked. (They cut it to this todayand i'm not 100% sure what it is). so say $1.30 before franking

say ANZ is trading at $13.00

A NOV09 $13.00 PUT OPTION is 2.62 ($2620.00)

Borrow $13,000.00 and buy 1000 shares. Purchase the above PUT option with your own money.

Scenarios. 

As of NOV09 (covers 2 bi - yearly dividend payments)

1. 
ANZ trading at $13.00. 
PUT is worthless. 
With dividend money you received during the year purchase another put out till NOV10.
Loss will be the interest on the 13,000.00 which at 9% for 8 months will be approx $900.00 which is a deductable expense

By NOV 10 it will cost say another $1200.00 interest

Break even price will be ($13,000 +$900 +$1200)/1000shares = $15.10 at NOV 2010
-----------
2. ANZ at $16.00
PUT worthless
share value - loan value = $3000.00
interst = $900.00

profit = $2100.00
----------------
3.ANZ at $10.00

Exercise put and repay $13,000.00 loan.
With dividend money you purchase another put out till NOV10 .
buy 1000 shares at $10.00............
new loan balance $10,000.00
interest $900.00

Break even is ($10,000 + $900 +$1200)/100shares = $12.10 by NOV 2010

Some stock dont pay good dividends so it works better for some than others.

Some brokers let the option account "talk" with the margin account so you can borrow 100% of the share value and NEVER get margin called. The fianl advantage is in option 3 where you get to participate in the down side


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## quinn123 (1 March 2009)

Thanks Ardyne, I have never traded in options before, so I have a lot of research to do before I would consider that, but it looks like an interesting option to invest in options anyway 

Anyone else like to share their experiences with *margin loans* or have any further advice on managing one?

Cheers.


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## beerwm (1 March 2009)

tech/a said:


> Hardly anyone uses Margin correctly.
> 
> This thread is a perfect example.
> Radge taught me how and many others and its not seen here.
> ...




Haha, what a tease. :

if you have a 50% loan, you are basically just adding a multiplier to all your trades/investments.

Hence, your gains are 2x (minus interest/loan), and your losses are 2x (minus interest/loan) - pretty basic stuff.

So the real question is.... is your system going to be profitable? or are you just going to throw money into the market and diversify like crazy?

It seems a case of putting the cart before the horse; once you can prove a profitable system - then you can adapt the leverage to it.
eg, if you system experienced a 20% loss at any given time... then if you leveraged up 5x 80%, you would of gone broke.

you probably think a system can only experience a 50% drawdown, but look at;
FlightCentre $28 -> $4
Suncorp $16 - $4
Babcock&Brown $25 - 0.10c

even Wesfarmers [didnt they release a profit increase?] $40 - $14

Just something to think about,


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