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Discussion in 'Introductions' started by FuriousG77, 25th Feb, 2008.

  1. FuriousG77

    FuriousG77 New Member

    Joined:
    28th Jan, 2008
    Posts:
    4
    Location:
    Melbourne, NSW
    Hi All,

    Great site, really enjoyed reading the articles here. I have a quick question on Margin Lending. I have about $45k in about 15 stocks and am looking at putting in other $10k or so of my money and then getting a margin loan for $50k so I'll be at 50%. So I'll get an equal amount of what I currently have with the margin loan. If I have 60 BHP, I'll get another 60 BHP, etc.

    My question is, I have some play money/spec stocks which I don't want to be linked to the margin loan/call conditions. When applying for the loan, do I list the shares I have and the ones I want to get and that is how the call is then calculated in the future?

    Also, is the margin call applied to each stock or to the portfolio as a whole? IE if BHP dropped the 33% required for a call, would I need a top up, or is it the entire folio that is the base for the call? Either was I should be safe, if it's per stock, $50k divided by 15 stocks means any call would be small, if it's the entire folio, it should also be safe with the law of averages. I just want to know going in.

    Thanks in advance for your help.

    PS. I come here to ask this seeminlgy basic questions, because most of the places offering a margin loan, don't actually seem to understand it. All the brochures seem to be based on starting a margin facilty from scratch, not with existing folio.
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi Furious

    Welcome on board. Short answer is that yes you can choose which stocks you lodge with the margin lender as security for your loan. If you don't lodge particular shares as security for your loan then the margin lender cannot sell them as mortgagee if there's an unsatsified margin call. (of course if there's ultimately a shortfall they'll still pursue you as an unsecured creditor for the repayment of the loan).

    Ask your margin lender for a lodgement of additional security form...

    You also mention speccy or play stocks. Likely they will receive a lower permitted LVR eg as low as 40% or not be considered sufficiently liquid security to be considered acceptable collateral.

    Margin calls depend upon your weighted average loan to value ratio plus any buffer. E.g. if you had $10 worth of shares with a 50% LVR permitted and $10 worth of shares with a 70% LVR then your overall portfolio permitted LVR would be 60%

    i.e. 10 x 50% + 10 x 70%
    ----------------------
    20

    Do some sums yourself to see if you had $20 of 50% lvr stock plus $10 of 70% LVR stock then you'd have a portfolio LVR of 57%. Conversely, if you had $10 of 50% LVR shares and $20 of 70% LVR shares your portfolio lvr woud be 63% etc etc.

    Hope that helps.

    Cheers
    N
     
  3. FuriousG77

    FuriousG77 New Member

    Joined:
    28th Jan, 2008
    Posts:
    4
    Location:
    Melbourne, NSW
    Hi Nigel,

    Thanks for the detailed response, that actually made sense to me! I apologise if that is somewhere on the site here.

    I'll have a browse through the site and see what everyone else is saying.

    Cheers

    G