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Margin Loans Margin Lending basics

Discussion in 'Finance & Banking' started by bonkerrs, 2nd Aug, 2007.

  1. bonkerrs

    bonkerrs Active Member

    Joined:
    26th Jul, 2007
    Posts:
    25
    Location:
    Sydney NSW
    It’s been such an uphill challenge for me to understand the process of using margin lending and this is just the basics. Baby steps right?! I think I’m starting to get it. Can someone please confirm if my understanding it right or not? As below...

    After obtaining margin lending funds from an institute (eg, CBA), it is put into a separate account (its own account) where you can chose which fund to invest in.

    Example:
    I use 50,000 cash and ML 75,000 (60%), this gives me a total investment of 125,000.
    Margin Call happens if the total amount drops below 125,000 where I’ll have to ‘top up’ the dollars to reach the 125,000. Therefore, if the investment dropped to 90,000 I have to find 35,000 to reach the 125,000.

    I hope my post makes sense and looking forward to your comments/advice/opinions!

    Ben
     
  2. Jayar

    Jayar Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    130
    Hi, Bonkerrs,

    Whilst someone might give you more assistance than I am able to give here, can I suggest you have a look at one of Sim's spreadsheets here...the third one from the top

    http://www.invested.com.au/83/

    Very handy little tool to give you a bit more of an idea how it all works. There are also many more such tools in that 'repository' page, given to us by fellow members to help us along. Check them out.

    As you say, baby steps, but we have all taken them, haven't we?

    Well done, and keep going.

    Cheers

    Jayar
     
  3. Rod_WA

    Rod_WA Well-Known Member

    Joined:
    18th May, 2007
    Posts:
    324
    Location:
    Inglewood, WA
    No, you probably wouldn't suffer a margin call here, provided either or both of these apply:
    - the LVR > 60% (typically you can get 70-75% on blue chip shares and funds)
    - there is a 'buffer' in the ML agreement, which may allow 5-10% headroom.

    I agree, check out Sim's spreadsheets and carefully read Sim's article http://www.invested.com.au/86/how-margin-loans-work-3106/.