A margin loan is a special type of interest-bearing loan secured by shares. Such loans are available from banks, but they are also marketed by organisations associated with some stockbrokers. A minimum loan size is usually imposed.
Whether such a loan is suitable for you depends on your circumstances. Margin loans are usually marketed on the basis that they will enable you to acquire a much bigger portfolio of shares than if you used only your own money. If the shares go up, then you will make a much bigger profit. Quite true - but this is only part of the story. If the shares go down, you will also make a much bigger loss. Leverage is always a two-edged sword so you might be in for a margin call.
A margin call is a formal demand for some remedial action by you. This can take the form of "topping up" your portfolio with shares or cash or, conversely, selling some of the shares. If it drops so that the amount of cover falls below a defined ratio, then the lender makes a margin call. For example, if the original maximum loan was 70 per cent of the value of a parcel of shares, a call might be made if the "loan to value" ratio goes over, say, 75 per cent.
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