Margin Loans explained
- What is a margin loan?
- Lending Ratios
- Margin Calls and The Buffer
- How to operate and manage your loan account
A Margin Loan allows you to borrow to invest in growth assets, such as shares and managed funds, meaning you can increase your investment opportunities more than if you were using only your own funds.
A Lending Ratio (also called a loan-to-value ratio or LVR) is the percentage that you may be permitted to borrow against a particular share, managed fund or other Acceptable Investments.
Typically, the amount you can borrow will be higher if your portfolio is diversified. You can choose to borrow the maximum allowed on an Acceptable Investment, or a lower amount.
To find out how much you may be able to borrow, check out the Acceptable Investments List.
A margin call occurs when the total amount owing exceeds the lending value by an amount greater than the Buffer, where the Buffer is typically a percentage above the acceptable gearing level to allow for intraday market fluctuations. You need to actively manage your facility to ensure you reduce the likelihood of a margin call occurring.
The Buffer is an allowance over and above the approved loan to value ratio or Lending Ratio to accommodate small market fluctuations without triggering a Margin Call. In most circumstances, Leveraged offers a Buffer of 10%.
So you’ve set up your facility, now you’re wondering how everything works. Here are some essentials on using your loan account.
Trading requires a broking account
To buy and sell shares, you’ll need a broker. This can either be a traditional full-service broker or an online broking service you can operate.
What happens when I place a trade?
Your broker may contact us to ensure your loan account has sufficient capacity or units to execute the trade. For buys, the capacity will be in the form of available funds. You must ensure sufficient funds are available to settle the trade at T+2. For sells, the capacity is in the form of stock lodged on your loan account.
When your trade has been filled, a contract note is generated by the broker and sent to Leveraged for funding on the settlement date.
Trades are settled on ‘T+2’, which trade date (T) is + two business days.
Contract notes are booked to your loan account via a data feed from your broker. Where you have sold, the shares will be removed immediately. Your funds available will be adjusted to reflect this trade and proceeds will reduce your loan on settlement date.
For buys, the shares you have bought will be reflected in your portfolio. Your funds available will be adjusted to reflect this trade and your loan will be debited on settlement date.
How to deposit money into your loan account
You can BPAY, Direct Credit or arrange for Leveraged to Direct Debit your nominated bank account are available. Contact Leveraged or one of our Relationship Managers, if you would like further payment information.
Our online service, Leverage Online, allows you to manage your loan account. Features include downloading statements, transferring money, fix and prepaying your loan in June, and monitoring your transactions and gearing ratio. Forms can also be accessed to manage your facility, such as change of address, bank account and some account transactions, i.e. stock transfers.
How is interest charged?
A Variable Rate applies unless you arrange for a Fixed Rate loan. Variable interest accrues daily and becomes due for payment on the last day of the month. Depending on which product you have the interest cost may be capitalised to your loan account. Otherwise, you can elect for this to be direct debited form your nominated bank account.
Lodging your existing shares and managed funds onto your loan account
If you have existing acceptable shares or managed funds, these can be added to your loan account to increase your investment capacity. Speak to Leveraged or the use calculator available through Leverage Online to find out how much you can borrow to invest.
Need assistance with your loan account?
Contact one of our Relationship Managers or call us on 1300 307 807.
Benefits of a Margin Loan
Borrowing additional money to invest increases your exposure to an investment, enhancing your profits and potential dividends earned if the portfolio rises.
A Margin Loan can enable you to diversify your investment portfolio. Borrowing to invest gives you access to more funds, allowing investment into a different range of asset classes, industries and companies.
Manage your investment activities with the help of a flexible facility, including:
- No set date to repay the loan
- Online access to view and transact 24/7
- A variety of interest rate options
- A wide selection of Acceptable Investments
Depending on your individual circumstances, you may be entitled to claim an income tax deduction for some or all of your borrowing costs.
Why Leveraged margin loans?
- Number 1 rated margin lender - for overall customer satisfaction*
- Your choice of broker - unlike some margin lenders, we make it easy for you to choose who you trade with
- More investment options - you'll have access to one of the biggest eligible investment lists in the market
- Choice of loans - depending on your investment needs and preferences, choose the loan that best suits you
- Owned by Bendigo and Adelaide Bank
*Results from the Investment Trends 2016 Margin Lending Reports, based on surveys of investors, brokers and planners