Friday, 11 September 2015


Ok this is a big step for a trader to trade on borrowed money.

Essentally the idea of a margin loan is to magnify your wins by the factor of how much leverage you can get against your original amount of money.

It is important to note that you can also magnify the losses you can make against these as well and depending on how your platform operates you may also accrue losses over and above the deposit you borrowed against. Best to check with your platform help team how they operate things like margin calls and sell offs. Some sites may give you a day to top up funds and others may just sell you out as soon as you hit a certain point and others might have inbuilt protection to stop your account going into negative territory whereby you owe the credit provider money for shares you don't even have.

This sounds scary but you need to know the effects of what a run of bad luck or bad stock pics and do to your account. if you are borrowing on a factor of 4:1 its not out of the question for a stock to fall below acceptable security levels and you will either have to put more of your own money in or loose the stock

One other factor you have to watch out for is that you are paying interest for your positions it is important to know how the bank or service provider you are with bills your interest and how much of it you will be paying vs. stock you will be holding. Some providers might charge interest daily some might charge it monthly.

Remember: in the event of a downturn you are still paying interest even though you may be holding on to stock for a long time until the stock recovers to the point where you can sell it off again.

Generally speaking if you are on say a 4:1 margin rate it would take a fairly huge downturn in the market to land you in trouble but these seem to be appearing once a year at the time of writing this you either have to be prepared to loose some stock holdings at a cost to your portfolio or be prepared to top it up with cash if need be

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