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Margin Lending question

When is my portfolio at risk of falling into margin call territory?

When is my portfolio at risk of falling into margin call territory? Stephen Karpin, CommSec


What is a margin call, and how can I calculate when my portfolio is at risk of falling into margin call territory?



Any portfolio that is highly geared is at risk of falling into margin call territory. This can be calculated if your current LSR (loan-security-ratio) is approaching your base LSR. If this happens, then you are within 5% of a margin call being triggered.

A margin call is triggered if your loan balance exceeds the lending value of your portfolio by more than 5%. This 5% is the buffer in which we allow you to restore the gearing level of your portfolio before a margin call is triggered.

When a margin call is triggered you must adjust your gearing level so that it is equal to or below your portfolios current lending value. A margin call must be met in full by 2pm Sydney time on the business day after the margin call.

To meet a margin call you can either:

a) Deposit money into your loan account to reduce your loan balance.
b) Provide additional fully owned shares or managed fund units to increase your portfolio value.
c) Sell part of your portfolio and using the proceeds to repay part of your loan.

It is your responsibility to ensure that you do not allow your loan to trigger a margin call. If your loan does trigger a margin call it is your responsibility to ensure that the margin call is satisfied in full within the required time. If you do not take action within the required time we may sell some or all of your securities to reduce your loan balance.

The best practices to avoiding a margin call are portfolio diversification and conservative gearing levels. The more your portfolio to be spread across different stocks and industry sectors, the greater chance you have of avoiding a margin call and the lower the gearing level the less chance of a margin call.  

By logging online and reviewing your portfolio spread and being aware of your gearing levels and proactively keeping them in check and under your base LSR level, then there is a good chance that you will not trigger a margin call.

By Stephen Karpin, General Manager, CommSec

Important Information
The views expressed in this article are those of Brian Phelps, a representative of Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814.  CommSec is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 23495 (the Bank) and a Participant of the ASX Group. As this information has been prepared without considering your objectives, financial and taxation situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances and if necessary, seek appropriate professional financial and taxation advice.  CommSec Margin Loan is a facility provided by the Bank and is administered by CommSec. Please be aware that a CommSec Margin Loan exposes you to unfavourable movements in the value of shares and units in managed funds, and possibly to margin calls. Please be aware that you are personally liable for any shortfall that occurs should your entire portfolio have to be sold to answer a margin call where there have been falls in the market value of your investments. Only investors who fully understand the risks associated with gearing into investments should apply. All applications are subject to the Bank’s credit approval process. Fees and charges apply.  Please consider the terms and conditions available from before making any decisions.

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