Share your margin lending experiences?

[jkool]

For a while I have been tempted with an idea of increasing my exposure to the stockmarkets by using margin lending.

I think by now I do understand it enough to try it in the real life and therefore look for the most appropriate margin lending institution/product out there.

As I am sure I am not the only one interested in this could any of you please share your related experiences with your margin lending institutions? Details such as who with, what are the rates, interests and other features will be deeply appreciated.

 

[Bingo]

Re: Margin Lending

jkool,

I will also be interested in the answers. I have always viewed margin lending as having high interest rates and involving the risk of being called. What I did was take a loan with a mortgage over my house. This got me an housing loan interest rate and no risk of margin calls. The loan acts like an overdraft i.e. I can repay and draw at will. Originally I took out the loan with GIO (about 18 years ago) and with the takeover it is now with AMP Bank. Another reason why I went this way was because back then margin lending was just starting and hard to get.

It is currently fully repaid as I am not confident of the market direction.

Bingo

 

[jkool]

Re: Margin Lending

Bingo,

thanks for good info. I actually had similar idea myself (using redraw home loan facility) but not having any home loan myself makes this really tricky. As I dont have enough savings I am not getting into my own home any time soon....but thats a story for different forum (or webpage altogether).

Second best I figured is to use margin lending which is still on average only around 1.5% dearer than a home loan.
I am also aware of LVR risks but I will try to get some additional safety buffer by only investing say 10% below the actual ratio limit as assigned by the lender.

 

[stefan]

Re: Margin Lending

jkool,

If you feel comfortable with margin lending, then so be it. I would just like to suggest that you think about it carefully. Under normal cirumstances margin lending will only be helpful to you if you are a high income earner as it would enable you to "save" some tax. Using margin lending to increase your portfolio is a risky thing considering that we only need a bomb somewhere to shatter the markets. As Bingo pointed out correctly, the market direction is hard to predict. If you get hit by a margin call, you will have to close off your postitions at the worst possible time IF you don't have additional cash to put into your account. You mentioned that your savings aren't that big so I strongly suggest that you don't open a margin lending account. Most banks have a minimum amount that you have to lend and they tend to be rather high (Westpac for example has $20'000). This is A LOT of money to borrow if you can't cover your back. Interest rates are about to rise. This will increase the interest you have to pay for your margin loan and make it all the more difficult to make a profit out of it. Yes, all the nice booklets are showing how easy it is to gain so much more with margin lending if your portfolio is returning just 5%. But nobody is telling you how quick you will end up with nothing if your portfolio happens to return a loss. Shares are much more volatile than properties so borrowing against them is something you shouldn't consider if you don't have better reasons than just increasing your portfolio.
Not to mention that you will be limited in what and how much you buy with your loan. So if you managed to get a constant profit out of your investment so far, then borrowing against it may be an option because you obviously have a winning combination. If that isn't the case, then margin lending will bring you lots of pain and your savings will be at risk.

It's your call and your money (yet) so be careful with it.

Happy trading

Stefan

 

[RodC]

Re: Margin Lending

Stefan is spot on. Be very careful.

I've been using margin lending for several years and have never had a margin call. I reckon it can work well provided you are conservative and disciplined.

Don't gear to the maximum, allow a decent buffer. In fact it's probably best to keep the gearing below 50% (assuming your limit is 70%) until you gain some experience.

Have some high yielding, fully franked shares in the portfolio to pay the interest. (this is easy to do at 50% gearing, my dividend income easily exceeds the loan interest and that's geared at around 60%).

Be very aggressive as to which stocks stay in the portfolio. Use stop losses and be very quick to get rid of any non-performers.

regards,

Rod

 

[jkool]

Re: Margin Lending

ROD & STEFAN: Thanks a lot guys. Even though I consider myself VERY conservative, long term investor I went back to my plans and reassessed the risks involved to eliminate tham as much as possible.

So basically (without lenghty revelation of my strategy) I think I have my bases pretty well covered and would like to take the next step and find an apropriate margin lending institution. I don need any fancy features as long as the costs for the facility are low, the interest rate is competitive and institution is flexible enough and provides complete online management of my investments.

I looked at infochoice and the institutions which appeal to me best on those comparisons are Colonial (using ComSec for broking) and BT financials (using ETrade).

Would you guys recommend some of these or do you know any lender I should NOT go with?

Thanks

 

[RodC]

Re: Margin Lending

G'day JKool,

I use comsec for both broking and for the margin loan. It worked out simpler for me at the time to set up the margin loan with them as I was already using their broking services. I haven't had any problems with them at all, but I also haven't done any recent comparisons to other lenders.

regards,

Rod.

 

[jkool]

Re: Margin Lending

Hi RodC,

I also use ComSec as my broker and would love to (for simplicity sake) go with them on Margin Lending however I found they are always on the expensive side.

I understand I gotta pay for quality, but ComSec's Margin Lending have fees which I just don want to tolerate. I dont have the figures here and handy, but the most annoying one, as far as I can recall, was some kind of
$10 per movement/transaction in your Margin Lending account. Most other Margin Lenders do the transactions for "free" (well you still need to pay them the interest right? and, with my budget, I like that much better.

Thanks for your thoughts

jkool

 

[RodC]

Re: Margin Lending

Yes you're right you do get slugged $10 each time you buy and sell shares which are security for the loan. Cash deposits to the loan don't attract this fee.

Brokerage is $19.95.

I try to minimise my trading, so the $10 doesn't bother me too much.

Rod.

 

[jkool]

Re: Margin Lending

All right then. So if the $10 fee is charged per trade it actually makes up brokerage of $29.95 ("accidentally" thats the standard ComSecs online trading brokerage charge lol

Well after all thats not all that bad with ComSec. As I said earlier, I am using them for normal trading so I am used to that $29.95 per trade so I may even give them a go.

Thanks Rod

jkool

 

[RodC]

Re: Margin Lending

That's right jkool, the margin loan gives access to the "internet preferred" brokerage rates (even though it doesn't actually tell you that anywhere on their website).

regards,

Rod.

 

[still_in_school]

Re: Margin Lending

Hi Guys,

just curious to know, i know comsec and etrade are very cheap for trading online... and normal trades are $19.95 - $33.95...

though i know of some other brokers who charge 1% fee for brokerage, while others are set at $55 - $75 a trade.

though out of interest, if you were to do a margin trade with comsec, and that one trade position was over $50k, what is the brokerage rate charged, for a figure like that?

is the brokerage rate still at $30.00 or is it at say 1% of the trade value?

Cheers,
sis

 

[markrmau]

Re: Margin Lending

comsec brokerage with margin loan is $10 +

$19.95 (trade <$10k)
$29.95 ($10k< trade < $20k)
0.12% ($20k<trade<$200k)

I never actually read about the additional $10 charge for margin loans, but they are very good at charging it. They also added $10 at the begining of the account (and no doubt will add $10 at end).

 

[still_in_school]

Re: Margin Lending

Hi Markrmau,

so would this be correct to say....

a $50,000 trade would cost $610.00 ($600 + $10) in broker fees one way...?

$50,000 * 0.12 = $600.00 + $10 standard fee...

Cheers,
sis

 

[still_in_school]

Re: Margin Lending

thanks if thats correct, but if thats true... then their brokerage fees are really high then...

 

[markrmau]

Re: Margin Lending

Hang on, $50K * .12% + 10 = $70. (Much more for telephone brokerage though).

How does this compare with others such as e-trade?

I noticed that StGeorge only allows telephone brokerage ($50 min) for margin loans when I was looking into it.

 

[still_in_school]

Re: Margin Lending

Hi Markrmau,

thats then realtively very very cheap, for brokerage for me with Tricom, its $300 in total for a trade thats about $50,000 and above.

trades around $20,000 are about $200 and trades under $10k are about $100 each way...

in my mum's trading account her broker charges her 1% to a certain limit, for a $10k trade that is $100 in brokerage fees in buying and also 1% on the selling, though she doesnt have a margin facility at all, im guessing it could be quite high, or comsec are just really really cheap...

oh well thats the feeling im getting...

Cheers,
sis

 

[wayneL]

Re: Margin Lending

A message from the night shift:

A 50k (USD) margin trade costs me $0.01 per share up to 1000 shares. Over 100 shares is $0.005 per share

So if I buy 1,650 x $30 shares ($49,500 worth), it costs me $13.25 brokerage. ...long or short.

 

[rozella]

Re: Margin Lending

Hi Markrmau,

so would this be correct to say....

a $50,000 trade would cost $610.00 ($600 + $10) in broker fees one way...?

$50,000 * 0.12 = $600.00 + $10 standard fee...

Cheers,
sis

This trade with AOT linked electronically to a marginlender would be $33 incl gst & if you wanted to enter it gradually to make sure that the market is heading the right way, you could have up to 6 transactions for the same stock on the same day & receive one contract note at the end of the day with the average buy/sell for a total cost of $33.

rozella

 

[tech/a]

Re: Margin Lending

Don (I think its you!(Rozella)).

How do I set this up?
Im paying through the nose!

John