How should I set up my margin lending account to protect against losses while the markets are so volatile?


It is important to maintain a well diversified portfolio to weather any falls in the market , most importantly, the portfolio needs to be also diversified against different sectors in the market. This is important when a particular sector (retail , for example) experiences a dramatic fall due to unfavourable retail figures being released to the general market.

In this example , a fall in a particular sector can be absorbed by a rise in another sector , for example resource or telecommunications.


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In recent times we have had high volatility in the market and with uncertainty in the Macro Economic environment , regardless which sector you are in , a fall in the market can still impact your gearing position and the ability to absorb a sudden fall in the market.

To protect against this uncertainty , you can look at different options to help you absorb any falls in the market.

1. Gearing at a conservative level , a 50% gearing level on a 75% lending value portfolio requires a 33% fall in the market before a margin call triggers.

2. Instead of capitalising interest , have it paid from a bank account, this keeps you disciplined and in control of your Interest expenses. Capitalising interest in a falling market can increase the chances of a margin call.

3. Always have cash or shares available to lodge to the loan, so that when you are in margin call , you are prepared for the worst and , most importantly , you have the ability to buy in a lower market.

4.  Investing in shares with a high yield can also help in repaying your interest expenses on your loan , in some cases , all of the interest can be paid from distributions, remember , though, this is dependent on the dividend yield of each security.

5. The last option available , and certainly , not least , is to hedge your portfolio using Index Options , this of , course is dependent  on what shares are held on your portfolio and requires some thought behind the process.

We recommend that you seek independent financial advice before considering applying for a Commsec Margin Loan. Applications are subject to Credit Lending Criteria.

By Stephen Karpin, General Manager, CommSec

Important Information

The views expressed in this article are those of Stephen Karpin, a representative of Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814.  CommSec is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 23495 (the Bank) and a Participant of the ASX Group. As this information has been prepared without considering your objectives, financial and taxation situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances and if necessary, seek appropriate professional financial and taxation advice.  CommSec Margin Loan is a facility provided by the Bank and is administered by CommSec. Please be aware that a CommSec Margin Loan exposes you to unfavourable movements in the value of shares and units in managed funds, and possibly to margin calls. Please be aware that you are personally liable for any shortfall that occurs should your entire portfolio have to be sold to answer a margin call where there have been falls in the market value of your investments. Only investors who fully understand the risks associated with gearing into investments should apply. All applications are subject to the Bank’s credit approval process. Fees and charges apply.  Please consider the Product Disclosure Statement, and terms and conditions, issued by the Bank and available from before making any decisions.

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