Margin Loans:

What is it?
A margin loan is a loan where you borrow money or equity to invest on the share market and you need to give the lender security over the loan.  You are not allowed to borrow the full amount of the investment, but only a percentage called the LVR, which is the loan to value ratio.

The net value, which is the difference between the value of the securities and the loan, is initially equal to the amount of one's own cash used. This difference has to stay above a minimum margin requirement, to protect the lender against a fall in the value of the securities where the investor can no longer cover the loan.

A margin loan can be a very effective way to increase your wealth portfolio if it is set up and managed correctly.  You need to have a large amount of money to start with and be happy to take risks.

What is the potential problem with a margin loan?
It has been described as a volatile way to invest because it is dependent on the performance of the share market.  This financial area is heavily regulated and a margin loan has to be set up by a licensed financial advisor.  It is not possible to create this type of loan without seeking financial advice because of the high risks.

One of the biggest potential problems is if there is a margin call.  A margin call is when the margin posted in the margin account is below the minimum margin requirement.  The investors now has to either increase the margin they deposited or close out their position.

How can we help you?
We can manage the investment so that a margin call is less likely to happen.  We are able to explain to you the advantages and disadvantages of a margin loan and to determine if it would suit your financial position.

Contact us for more information or to book a free no obligation appointment please click here.

Financial Advisers Australia - Australian Credit Licence Number 388789

Prepared by John Hehir of Financial Advisers Australia (FAA)