Margin calls - what do people do?

[Pager]

I was talking with someone who works for one of the big margin lending providers today when I asked if they had done many margin calls the answer was yes but most clients elected to add more money into there accounts rather than sell down stock.

I was quite surprised at this I have a margin loan myself and although I haven’t had a margin call, as my LVR crept higher I took steps to reduce it and sell stock, so far everything ive sold has gone on to be a lot lower, to me this makes sense as I feel my long term portfolio should support itself, although through the 1998 crisis and the 2001 crisis I never even came close to a call just shows how bad this current crisis is.

What I found worrying was that it seems a lot of people with margin loans have used the interest rate cuts and funds from mortgages and the like to prop up there loans rather than sell down, if we get another leg down I would imagine many formally wealthy people will be just that.

 

[drsmith]

Re: Margin Calls, what do people do

When I started investing in shares in 1992 I took out a margin loan but never took the LVR beyond 30%. I did not want too much risk of being forced to sell shares in a weak market.

While the market fell in 1992 I'm glad it wasn't a year like this. That would have put me off for good.

If I was borrowing to buy shares today I would use a home loan in preference to margin lending as there's no risk of a margin call and the interest rate is lower.

 

[ROE]

or invest what you got at hand no margin called ever or worry about job lost and it provide you income from it from day one

 

[kenny]

May be adding money to reduce the loan amount or increase the collateral allows the clients to continue avoiding the issue of losses. I'm starting to think it is signs like these that might herald a bottoming of the downtrend.

When these same folks capitulate and dump their loved portfolios because they are sick of watching the losses, then it may be a time to buy.

just my take on events.

Cheers,

Kenny

 

[Garpal Gumnut]

I was talking with someone who works for one of the big margin lending providers today when I asked if they had done many margin calls the answer was yes but most clients elected to add more money into there accounts rather than sell down stock.

I was quite surprised at this I have a margin loan myself and although I haven’t had a margin call, as my LVR crept higher I took steps to reduce it and sell stock, so far everything ive sold has gone on to be a lot lower, to me this makes sense as I feel my long term portfolio should support itself, although through the 1998 crisis and the 2001 crisis I never even came close to a call just shows how bad this current crisis is.

What I found worrying was that it seems a lot of people with margin loans have used the interest rate cuts and funds from mortgages and the like to prop up there loans rather than sell down, if we get another leg down I would imagine many formally wealthy people will be just that.

Exactly what I have done, selling down a margin loan in a bear market is a very wise move. Topping the loan up with cash is throwing good money after bad.

gg

 

[cuttlefish]

Re: Margin calls - what do people do?

Not have margin loans.

 

[dutchie]

Margin Call - the movie
https://www.sbs.com.au/ondemand/video/274666563866/margin-call

 

[wayneL]

It very much depends on how you manage your margin.
From better experience is not a wise thing to have too much of your capital in a margin account, much better to sweep money in and out as a necessary.

Therefore the equation is extremely simple when you receive a margin call, liquidate, or throw more cash into the position.

Your trading plan will dictate the best avenue

 

[tech/a]

As Wayne says

liquidate part or all of the position or
Put more money into the trade.

it shouldn’t be emotive
It’s a business.

you minimise loss and maximise profit