What is margin? When investors buy and sell securities, they can choose to pay the full amount or borrow part of the money from a brokerage firm. If investors choose to borrow money, they must open a "margin" (commonly known as "margin") account with a brokerage firm. The part of the amount deposited by investors against the total amount of securities purchased is called "margin". Brokerage firms provide loans to investors, who use purchased securities or other securities held in margin accounts as collateral. After the investor sells the securities, he or she must repay the borrowed money according to the terms of the margin credit facility. The profit from the entire transaction is the cost of purchasing the securities minus the proceeds from the sale of the securities, plus transaction fees and margin loan interest.

Why engage in margin trading?

Generally speaking, investors use margin trading to increase their purchasing power and expand their investment amount through leverage effects. Although margin trading may provide higher returns, the potential losses will also be multiplied.

Suppose an investor buys a certain stock for 100 yuan, and the stock price later rises to 150 yuan. If the investor pays in full for the shares purchased, the return on investment is 50%. But if he purchases the stock at a 50% margin (also known as the "margin" ratio), pays 50 yuan in cash and borrows 50 yuan from the brokerage firm, his final return on investment will be 100% of the invested capital.

However, when stock prices fall, margin trading will result in huge losses. Suppose the shares purchased for 100 yuan fall to 50 yuan. If the investor pays for the shares in full, his investment will lose 50%. But if he trades with a 50% margin, he will lose 100% or lose all his principal! Please don’t forget that leverage can make investors make huge profits, but also cause them heavy losses!

Margin Calls

When investors engage in margin trading, in addition to incurring greater losses, they may also be exposed to the risk of margin calls from brokerage firms. If the value of the securities in the margin account falls below the preset margin ratio, the brokerage firm may require investors to provide additional collateral (commonly known as "covering").

Investors should note that brokerage firms are not necessarily responsible for issuing margin calls to clients or notifying clients that the value of the securities in their accounts has fallen below the specified margin amount. Brokerage firms can sell clients' securities at any time without consulting them first. Certain margin client agreements stipulate that even if a brokerage firm says it will give clients time to provide collateral, the firm still has the right to sell their securities without waiting for clients to pay up full margin. This kind of "forced liquidation" may be detrimental to customers in terms of the price and time of selling securities. Additionally, if a client has more than one share as collateral, the brokerage house may sell the most liquid share that is not the one the client intends to sell. Therefore, before trading, investors must inquire about the relevant margin call procedures.

Investors must know that in the event of liquidation, the loss may exceed the margin amount deposited. If the money obtained after liquidation is still insufficient to repay the margin loan, the investor will not only lose all the margin deposits but also bear the loss of the account.

Margin Client Agreement

Before conducting margin trading, investors must enter into a clear written agreement with the brokerage firm.

Before signing the relevant agreement, you must read the content carefully to make sure you understand the terms of the margin account

If you draw new shares through margin, for example: if you do not draw 20 lots through margin, the bank will receive 20 The principal plus 1% is the handling fee first (101%) and then there is a bank levy of 50-100 (Fixed cost, it doesn’t matter if you draw one lot or a hundred lots). If you draw one lot, the bank will return 19 lots of principal. The gold plus 19 handling fee means that you will only be charged the handling fee for one hand! Remember, if you draw two hands, you have to pay the handling fee first. If you draw two hands, you have to pay the handling fee for both hands. The bank will return the principal of 18 hands plus the handling fee of 18 hands to you!

But let’s say you use 1 mosquito to borrow 9 mosquitoes for margin trading, because you only have 20,000 in cash, but if you want to use 200,000 to draw money, you have to borrow 180,000, and the interest is 180,000 x The annual interest rate (hsbc is 5.5) x the number of days (Sinotrans is 7 days)/365 days = 189. The interest will be deducted when the water is returned, whether you pay or not! If you draw a lot later, the bank will return 20,000 yuan, minus the value of the IPO, plus a handling fee and interest!