Risks of a margin loan
Margin calls
If a portfolio's value falls so that the amount of equity an investor holds also falls below our required levels, we may ask for extra security or funds to be deposited. If an investor fails to do this, we may sell their assets to correct the position.
Reduced gearing levels
We regularly review our lending ratios and may decrease them, even for securities an investor already owns. When that happens, it can sometimes trigger a margin call.
Suspended securities
If an investor's securities get suspended from trading we may ask them to deposit additional funds or securities.
Increased rates
If an investor has a variable interest rate on their loan, it may increase. To manage this risk, investors should ensure they gear conservatively and have enough capital to deal with a rate rise. Investors can manage this risk by offsetting any distributions or income received from securities against the balance of the loan.
Increased losses
While leverage may amplify gains, it also amplifies any losses in a falling market.