Brokers from time-to-time may reduce or remove the Loan to Value Ratio (LVR) on particular stocks.
If this does occur to you and your Loan to Security Ratio (LSR) increases to a level higher than your margin call LSR, then a margin call will trigger and you will required to reduce your gearing level by either depositing cash, selling stocks, or lodging more collateral (cash or other stocks on our approved list)
Diversification with low risk companies is the key to a successful margin lending strategy. A diversified portfolio should hold at least eight stocks. Because gearing naturally amplifies risk, it is often better to choose stocks with large market capitalisations that are traded frequently – you probably don’t need to go outside of the top 200. When choosing the mix of stocks, ensure there is diversification across sectors and keep the weighting in your portfolio evenly distributed.
By applying the above gearing strategy and by not fully gearing your portfolio, then your margin loan should be able to withstand the loss or reduction of an LVR against a stock in your portfolio.
