Hoping someone can help me get my head around margin loans and account workings. I understand what a margin loan is and how they work. What is not clear is what accounts are(or need to be) setup and how they all work together. Some specific questions: 1. Are you restricted to certain brokers (online or otherwise) depending on your margin lender? ie. can commsec be used regardless of margin lender? 2. What accounts are setup with the margin lender? Is it just the loan account and does this work in the same way as a LOC against a property? 3. Do you just place all your cash/savings into the margin loan account and invest from there? or do you still have a separate account with a bank where you keep your own funds seperate from the loan funds? 4. If you want to invest under a trust structure, does this mean that both the broker account and the margin loan must be under the trust name, or just one or the other? What is recommended here? I probably will have a few more questions, but I will wait till I get some responses on these first. thanks
Hi Triple H I'd suggest talking to your proposed margin lender. But my experience has been: 1. I've used Commsec with BT. 2. Margin loan account is set up in my case by X Co as trustee of the Ward Family Trust. From memory they designate that as "X Co Ward Family Account". Importantly your broker "third party account" needs to have the same account designation I think. 3. Separate. I just give them authority to "debit account for $X and please drawn loan funds of $Y to buy $X+Y worth of units in the ABC Fund. Here's the completed new/additional application form for the ABC Fund." and they execute it. 4. I'm pretty sure the account designation must be the same. But again, ask the lender. Hope that helps. Cheers N.
Thanks Nigel Commsec/BT is the combo I am looking into, so at least that part is ok. Leads me to a few more questions... 1. Say I have a loan account with BT, how does having another brokerage account (non loan account) with commec fit into the scheme of things? If you can buy and sell straight out of the BT loan account, what is the purpose of say a commsec investment account? Wouldn't it be best to keep your cash in the BT loan account to reduce interest on the loan while the funds are not invested? 2. With commsec I believe you have to tell them which account to use, and to change accounts is not an instant thing to do. Takes a number of days. Again, if you have the two accounts, how do you "switch" between them for investing? Do you need two seperate commsec accounts?
Another one.. If you want to start trading, how does the margin lender work out how much they will loan you initially when each share has a different LVR they will lend on?
1. Yes you have two commsec accounts with different account numbers. One is your usual trading account and the other is your third party account linked to the BT margin loan. Bear in mind brokerage is much higher on the third party account with this set up. 2. Yes you need to be using the third party account if you want to buy on margin. To switch between then you just log in using the appropriate account number. Well that's how I do it. There may be a better way...
They figure it out based on the overall portfolio LVR. Without doing an example sum here if you had mostly 70% LVR shares and just a few spec shares that have a 40% max LVR then your portfolio permitted lvr would be somewhere around the 68-69% mark. Conversely if you had just a few 70% LVR permitted shares and mostly 50% permitted LVR shares your portfolio permitted LVR would be around 51-52%... You get the drill... N.
So what is the idea behind this? Why wouldn't you want your cash savings and margin loan amount in the one account? Do you not mix your own money with the margin loan?
I understand that part, but what happens when I first apply for the loan. Say I apply for a BT margin loan and have say 50K of my own cash. How do they work out the loan amount if I don't own any shares yet?
yet another.... sorry, yet another question while you are all thinking about the others... The two margin lenders used the most seem to be BT and LE. Is there any problems with commsec for the margin loan? It seems you can get better brokerage fees and would streamline if everything was with them. The interest rate also seems better for "standard - low end" investors like myself. Is there any downsides with commsec margin lenders, such as fewer individual shares they will lend against or hidden fees etc?
The NavraInvest Australian funds are also off the LE approved list - they reached their allocation limit ... seems like the funds have been too popular! NavraInvest US is still on the LE list. Just to be clear - this does not affect existing investments - the margin lend against them still stands.
Sim' is right. It's a case of the NavraInvest Funds being too popular and the margin lender not wanting too great a percentage of its loan book against any one fund... BT still open as far as I'm aware. Cheers N.
Guys, Why do you use Commsec coupled with BT? I use Westpac and BT - you get a $24.95 brokerage with Westpac - Commsec is $5 higher. Also if you are using Westpac and already are a customer (and have their professional package) you qualify for .2% off the BT Margin Loan. Commsec is better for charting , watching stock prices etc than the Westpac site though IMO.
Historical reasons. I've had a Commsec trading a/c longer than I've had a margin loan. Maybe I need to look into Westpac. Cheers N.
** bump ** Another question lost in the replies... Nigel, I may have not been clear in my initial question on this one... How do margin lenders work out how much they will loan you if each share has a different LVR and you don't know what you are going to buy at first....
Hi HHH I have everything with CommSec, it is actually only $19.95 for a trade, depending on a few things (CDIA account, etc). They do give different MGRs for some stock compared to others, but it's not a big deal. I think if I was investing long-term into a fund, I'd go looking for the best MGR and rates, but for trading, I'm indifferent. With the margin loan, you generally start by committing margin cover. Your account gives you quite a lot of flexibility based on previous trades, amount of money in account, approved margin amount, etc. So with say $10k committed, you can go off and make whatever trades and the loan vs. cover will be worked out. If the MGR of say OXR was 50%, you had $10k of cover and you purchased $30k, then it will simply say that $10k is under call and you have to make the difference. As long as you transfer another $5k, then you'll be ok due to the buffer (I think CommSec does only 5% buffer). So they're not exactly issuing a set amount to start with, it's all calculated as you go. -T-
PS. CommSec Pro Trader (the new upgraded version) is pretty good in my opinion. Start an options account and write one call every now and then and you get it for free (including real time data). If you're a trader, it's even better for that now. Lots of options stuff like a Black-Scholes calculator (for delta, gamma, etc). Much more available in the way of tech indicators. Lots of good stuff. Plus it's real time.
