Margin lending is provided by financial institutions for investing in shares. Borrowing money to invest on the share market or in other financial products using existing investments as security, is a margin loan.
Get a margin lending share market account to purchase shares and there is a risk that your stock will fall in value as the share market can be very volatile. Margin lenders require security over the shares you buy to cover themselves in the event of a downturn and further limit your level of gearing to a preset percentage of the share value usually a maximum of 70%. This is called the Loan to Value Ratio (LVR). The 30% margin is provided by you the borrower. Understandably, margin lenders are particular over which shares they will allow you to purchase.
Having margin lending account can be associated with margin call. The sinking feeling in every borrower’s stomach is to receive a margin call from your margin lenders. This occurs when the worth of your investments fall to a point where the value of the loan owing exceeds the maximum amount permitted to be borrowed. You will be required to immediately top up your margin lending account with more security cash or through the partial sale of your port folio.
All the banks provide margin lending service. There are also a number of firms specialising in the area of margin lending.
There are number of things you should remember about margin lending: