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What about risk?
Every investment has risks, and although margin lending has the potential to magnify returns, it also has the potential to magnify losses.
Margin Calls
Increases in borrowing, or a falling market, can affect the security on your loan. Whilst St.George Margin Lending provides a buffer zone to allow you to absorb small market fluctuations above your borrowing limit, if the amount borrowed exceeds the borrowing limit by more than the allocated buffer zone, you will be required to meet a Margin Call, by 2pm (Sydney time) on the next working day, to restore your borrowing capacity.
How to Meet a Margin Call
- repay part of your loan
- deposit additional securities
- sell part of your portfolio
Ways to Reduce your Margin Lending Risk
- diversify your portfolio
- invest in quality shares
- borrow less than your loan limit
- make regular interest payments
- reinvest your dividends
- maintain cash flow to meet margin calls
- develop a strategy to manage margin calls
- monitor your margin loan
Buffer Zones
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5% for shares with a gearing ratio of more than 75%
10% for shares with a gearing ratio of 75% or less
10% for managed funds
