What is the call of the broker?
Someone who wants to buy shares that cannot completely finance could get the money that is needed by borrowing them from a broker. This type of loan is called a margin loan and, like most loans, has an interest rate. The interest rate of a particular loan is determined by the individual broker, but in general it is based on a broker call - also known as the Broker Talk measure or a loan rate. This rate is published daily in certain financial publications.
Greater purchasing power
Although the broker does not have to be the first person he thinks when he has to borrow money, it can be a profitable enterprise. However, it is not a risk without risk. By logging in to an account on a margin at a business broker, the investor is able to buy more shares than otherwise.
Capital usually required
cash and/or shares on the investor's account are used as a loan security and brokeThey usually impose a minimum percentage of equity before the investor is eligible for Margin. This means that the value of the shares owned by the minus the amount owed must at least be certain of the total value of the shares. In other words, the investor cannot owe more than a certain percentage of shares value - usually between 25 and 40 percent. If the value of the shares falls and causes the investor's capital to fall below the minimum of the broker, the broker can issue what is known as a margin call, which means that the investor has to pay sufficiently to increase his capital over the minimum percentage.
Variable rate
Interest rate that can be higher or lower than a broker call rate. In general, it is within 1-2 percentage points, but the difference may be greater. The broker call is a variable rate, which means that it can fluctuate up and down based on the basic interest rate index - the main rates set by the government. The Broker Talk Make may vary during the Loan Lifey, or it could remain the same. A loan could be a long -term loan or a short -term loan.
risk related
Investors are advised to be careful when involved in this type of measure. If the stock suddenly drops and the broker issues a margin call, but the investor cannot or does not pay the required amount, the stock broker can sell shares from the investor's account until the loan is paid off. This may be bad for the investor because this is usually the worst time when the investor sells this share. However, if the investor cannot pay the required amount, there is no other option. This is the risk of margin loans.
Other financing options
Investor thinks about using Margin in investing may be wiser to obtain a Traditional Bank Loan, although the Bank's interest rate is often higher than the broker call. This is partly because the bank provides a fixed rate rather than a variable rate, as in the case of a broker call. InvasionAfter considering the risks with borrowings, Estor should carefully proceed carefully compared to all other loans.