Borrow To Invest: Margin Calls
What is a margin call?
All margin accounts must maintain a minimum margin maintenance ratio of 60%.
Falls in the market value of your portfolio can make your margin maintenance ratio to exceed 60%. RHB provides a buffer of 7% to give you additional time to manage your portfolio into a suitable security position. If this 7% buffer is exceeded i.e margin maintenance ratio exceeds 67%, you must either increase your security or repay your loan to the required level. This is called a ‘margin call’.
You shouldn’t fear a margin call. It is not like a default on an ordinary loan. Instead, it is a timely reminder to rebalance your position.
We will always attempt to contact you if a margin call occurs. However, it may not always be possible for us to contact you, so it is your responsibility to determine when you are in margin call and to take action to restore your position.
Clearing a margin call
There are a number of ways to clear a margin call:
- Deposit funds into your loan account
- Contribute additional Approved Securities, or
- Sell all or part of your portfolio to repay the loan balance due.
If the margin call isn’t met within 3 days, RHB will sell enough securities to meet the margin call and cover the buffer, even if RHB has not been able to contact you. Subsequent rises in the market value of your portfolio will not clear a margin call. However, should the margin maintenance ration exceeds 77%, RHB shall have the right without further reference to you to immediate sell the appropriate number of shares that have been pledged or charged to RHB to repay your loan to the required level.
How to avoid a margin call
You can substantially reduce the chance of a margin call by effectively managing your margin loan:
- Borrow conservatively
- Monitor your portfolio and loan account details regularly
- Ensure your portfolio is well diversified to reduce volatility
- Pay your monthly interest rather than allowing it to capitalize on your loan.
- Create a cushion against margin calls
Information provided by RHBInvest.
*All orders are subject to our standard vetting process before they are placed on the market. We do not guarantee that your order will execute.
The information above, including illustrative studies, has been prepared by the Margin Lenders concerned. None of this information should be construed as a recommendation by RHB Investment Bank Berhad and RHB Investment Bank makes no warranty as to the accuracy or completeness of its content. RHB Investment Bank accepts no liability for any loss caused by use of any of the information included in this document. Each user will need to consider their own investment objectives, financial situation and particular needs before acting upon any of the information provided herein.
Please be aware that while leveraging into investments increases the potential return on investments, it is important to recognize that it can also multiply the effects of falls in share market values. You should seek professional advice before applying for a share investment loan or margin loan. |
