Saturday, December 02, 2006

Margin / Shares Financing (Pembiayaan Margin)

Somebody sent an email asking about Margin/Shares Financing. Here's some info on the related topic...

Many advertisements offering margin financing to buy shares, some stockbrokers also offered financing, frequently up to the value of your collateral. For example, if you place a deposit of RM100, 000, you would be able to purchase shares worth up to RM 200,000 on margin financing.

This means you would be buying shares using
borrowed money, which is also known as margin financing.

Brokers will also allow you to use shares you already own as collateral to finance the purchase of more shares. However, some conditions apply, such as, most institutions require that the shares you place as collateral be first board and selected second board shares. Warrants and especially short-dated warrants with less than one year left before expiry and some technology shares are not acceptable as collateral by most brokers.

Now, before venturing into margin financing, please consider carefully:
  • Do you understand the costs of high financing?
  • Do you understand the risks that are involved when you buy on margin?
  • Do you understand how much you stand to lose if the market goes down?
In the hands of an inexperienced investor, margin financing could mean only one thing. Going bust! This is especially true in a declining market.

More Info: Securities Commission of Malaysia


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