Selection of Online Brokerage: Margin Financing

Margin Financing

There are many reviews out there on various online trading platforms. If you are taking a long term approach to investment, it will be relatively easy to choose one. However, if you are going to be trading instead of investing and holding for the long haul, you will probably need some margin financing or a margin trading account. There are many margin financing options for you to choose from whether you are located in Singapore or other parts of the world.

Example: Normally if you wish to buy 1,000 shares of “A” priced at $10 per share, you need to have $10,000 in your account to finance the purchase. However with margin financing, if the margin for the purchase of share “A” is 10%, you will only need $1,000 in your account to buy these 1,000 shares.

Sounds great? Only if the trade went your way. Both winnings and losses will be magnified accordingly to the margin rate. This is why you have to be careful when taking on margin for trading, as you can get a margin call if the value in your account falls below your maintenance margin (i.e. the collateral, cash or securities are not sufficient to cover the money you have borrowed from your broker).

How long is the interest free period? While some brokers charge interest as long as you financed your shares purchase with margin, others allow an interest free period. This is very useful for swing traders! E.g. Maybank has a 7 days interest free period and UOB Kay Hian provides a 10 days interest free period. Normally, I don’t hold beyond 10 days anyway, so essentially it is considered “free” margin for me.

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