- What is margin trading?
A margin lending account enables you to pledge securities as collateral for a loan, which you can use to leverage your investment amount.
By taking a margin loan, you can increase your purchasing power, beyond the value of the cash and/or securities on your account. It’s an attractive option if you are an aggressive investor.
Example
Client A is holding HKD $20,000 cash for investing, he can release his purchasing power by purchasing the securities with marginable value (In the example, 80% of margin ratio is set for the stock). Details are as follows:
| Transaction | Cash | Market value | Margin ratio | Marginable value | Extra purchasing power(After trading) |
|---|---|---|---|---|---|
| Before trading | $20,000 | $0 | 80% | $0 | 0 |
| 1 | $-80,000 | $100,000 | 80% | $80,000 | +80,000 |
Technically, customers can purchase up to HKD 100,000 securities by using HKD 20,000 cash. The formula is as follows:
Cash / (1- Margin ratio)
= HKD20,000 / (1 – 80%)
= HKD100,000
2. If customer requests an increase in the transaction limit or credit limit, which department can the customer apply to?
Customers can apply to our company through online customer service.
3. How can customers know which stocks are currently with margin ratios?
Customers can pay attention to the stock margin list on the webpage, which will be updated from time to time, and customers can browse it regularly.
4. What factors will be considered when applying for transaction limit or credit limit?
The company will comprehensively analyze various factors, including analysis of the investment portfolio held by customers, portfolio liquidity/concentration, net asset value, past transaction records, fund deposit records, settlement records, personal assets, and background, etc. in order to provide more purchasing power for customers to buy and sell stocks.
5. Why use margin account trading?
Buying stocks with marginable value in a margin account, allows you to leverage your positions to generate more purchasing power. By using this additional purchasing power to buy additional stocks. This can diversify your portfolio or allow you build bigger positions in your favourite stocks.
6. What are the risks of margin trading?
The leverage would increase both potential gain and loss. Loss would lead to margin call and may cause forced liquidation.
7. What to do if I receive a margin call message?
Customers can either deposit cash or sell stocks to reduce the margin loan.
8. How much can I borrow when trading on margin?
The margin loan amount is determined by the market value of the securities in the account and the margin value.
9. When will the securities in the margin account be forced to sell?
When the amount owed in the margin account exceeds the margin value, a margin call notice will be issued to the relevant customer. If the customer's margin ratio and loan ratio reach an excessively high level, the company will liquidate customer's stocks until the amount owed is lower than the margin value of the remaining portfolio.
10. What is the margin interest rate?
Margin interest rates varies by market currently ranges between 4.0% and 5.2% annually or 0.33% to 0.43% per month.
11. What is the impact of stock suspension on margin accounts?
When trading is suspended, the stocks will become non-marginable stocks. If you hold the suspended stock and have used the margin value, it is likely that the margin account arrears will exceed the margin value. In this case, the customer may receive a margin call notice.