Margin trading increases wealth through gearing

This facility enables investors to use their existing investment portfolio to secure loans, the funds of which are used to invest in the market. The process allows investors to become more active and have access to a greater range of investment opportunities than would be possible using their own capital. They can trade in and out of investments relatively quickly and cheaply, since investments can generally be bought and sold on any business day. Risk can be reduced through investment spread.

The client’s initial portfolio, together with the new investments they purchase, are held as security for their margin trading loan. As the value of the portfolio increases, they are able to make additional borrowings to increase their portfolio.

Says Michael Botes, Head: Private Client Fund Management at SCMB Securities: “Margin trading is based on a long-established practice known as gearing, which simply means borrowing money to invest. The idea is that over time, an investment will increase in value by more than the cost of the loan, thereby providing customers with a healthy return. However, if an investment performs poorly clients stand to make a loss. Margin trading requires a good understanding of the equity market and constant monitoring of the margin account.”

By gearing into the equities market, investors can access a greater range of investment opportunities than would be possible using their own capital. This increases their ability to create wealth, and enables them to take advantage of greater diversification.

SCMB Securities will lend clients an initial amount of up to 40% of the market value of the approved investments that make up their portfolio. This percentage is called the lending ratio and can vary from time to time.

Customers are charged interest on the loan and will earn interest on any credit balance.

SCMB Securities caters for two types of margin trading clients: non-discretionary advisory clients and Internet clients.

Non-discretionary advisory clients will be allocated an equity advisor to provide general information on the margin account, as well as investment advice. Clients can view their margin account on the Standard Bank Online Share Trading website. Trading may be carried out only through one of SCMB Securities’ equity advisors.

Internet clients will use the Standard Bank Online Share Trading website exclusively to manage their margin account. Standard Bank Online Share Trading provides a secure environment in which to trade on the stock market, and offers subscribers a range of features, including include live share prices, charts, market information, research reports, economic/business news, and company information.

For more information contact: Michael Botes (011) 636 0100