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How to Calculate Margin - YouTube
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[Music]
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before we break down how to calculate
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margin
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let's look at where you can find how
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much margin you have
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in web broker go to account balances
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if you hold more than one account you
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can identify your margin account by
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looking for an
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e or f at the end of the account number
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e represents the canadian component of
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your margin account
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and f is the u.s component
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this number shows your margin excess
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this is the total marginal borrowing
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room you have
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since the values of your investments
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change from day to day
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this number also changes daily so it's
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good to reference it often so you know
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where you stand
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a positive number means you have excess
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margin that you can use to trade or
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withdraw funds
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a negative number means you're in a
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margin call you're in a deficit and you
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need to deposit funds
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or sell investments immediately to bring
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your margin into good standing
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you can also see your margin balance in
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an order entry ticket
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this number is real time and updates
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whenever money is moving
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or a trade is occurring in the accounts
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changing from the canadian component of
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the margin account to the us component
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of the margin account
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also displays your combined buying power
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or margin
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in that currency for easy reference
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since it's real time this is the best
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number to use
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when you're calculating margin although
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a margin account lets you borrow money
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you don't have to if you have enough
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cash to cover a trade
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you can use that check here to see your
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balance
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but if you're using margin to buy an
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investment here's what you should know
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first
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every investment has a margin rate and a
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loan value
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a simple formula to remember is that
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margin requirement rates
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plus loan value rate equals a hundred
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percent
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margin rate is the amount you pay from
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your own cash and loan value
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is the amount you're borrowing from the
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broker these rates are guided by
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investment industry regulatory
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organization of canada
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or iroc but brokers can set higher
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margin requirements too
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a common rule of thumb is that any large
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company with a stock price over five
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dollars
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has a margin rate of 30 percent but be
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aware that margin rates and loan values
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can change
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any time if the stock or market
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experience is a change
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like in volatility or liquidity so
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for example if a stock is now deemed
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higher risk
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then the loan value might change from 70
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percent to 50
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and some may not be marginable at all to
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see the list of investments with higher
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margin requirements
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click here on the other hand
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if that stock were to drop below three
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dollars a share
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then the loan value would drop to zero
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percent
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this means you would have to pay a
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hundred percent of the trade with your
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own cash
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now that you know where to find your
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available margin in web broker
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you might be wondering how to know how
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much you can buy with it
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this is commonly referred to as your
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buying power
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for that we have to look at your
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available margin the margin rate
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and the price per share of the stock you
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want to buy
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let's say your total available margin is
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5 000
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with no current investments in your
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portfolio
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how many shares of abc1 stock can you
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buy if it's trading at fifty dollars a
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share
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with a thirty percent margin rate first
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five thousand dollars divided by thirty
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percent
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means that your buying power is sixteen
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thousand six hundred and sixty six
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dollars
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and sixty six cents for any 30
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marginable stock
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dividing this number by 50 dollars a
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share equals
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333.333
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since you can't buy a fraction of a
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share this means you can buy a maximum
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of 333 shares
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it's also a good idea to leave enough
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margin buffer to pay for any applicable
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commissions for your trades
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now to find out the total cost of the
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trade we multiply 50
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by 333 this shows that the trade would
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cost
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16 650
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remember if you're looking at buying u.s
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stocks
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use the u.s dollar equivalent value now
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how much would you have to pay in cash
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and how much would the broker lend you
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on margin
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to calculate what you would owe multiply
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16
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650 by 0.3 this totals
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four thousand nine hundred and ninety
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five dollars
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remember because of that fractional
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share that we dropped
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our amount is slightly less than five
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thousand dollars plus commissions
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to calculate the loan value multiply
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sixteen thousand
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six hundred and fifty dollars by point
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seven the remaining seventy percent
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alternatively you can also subtract four
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thousand
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nine hundred and five dollars from
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sixteen thousand
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six hundred and fifty dollars this
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results in a loan value of eleven
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thousand
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six hundred and fifty five dollars
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if you go ahead and place this trade
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your new cash balance will be negative
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eleven
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thousand six hundred and fifty five
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dollars and your new margin excess would
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be zero dollars
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this is an extreme example where we're
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using every single dollar available
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in real life you may not want to use all
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your available margin
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because then you leave no room for any
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downward movement in your investments
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depending on your investing style you
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could leave a certain percentage of your
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margin
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as an extra buffer this may give you
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some room if your investments decrease
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in value
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in our example the account's negative
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cash balance is also known as a settled
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debits
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this means you're borrowing cash from td
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and interest will be charged
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every single day that the negative
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balance exists and you'd be liable for
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any interest charges
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if you do accrue any interest charges
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the monthly total is posted to your
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account once a month
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to see what the current margin interest
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rates are check out our website
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if your margin excess also goes negative
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you'd be in a margin call
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and you would want to fix that right
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away
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for example the next day abc one stock
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closed down one dollar
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at 49 dollars per share your loan value
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would be 333 shares
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multiplied by 49 per share and
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then multiplied by the 70 loan value
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this results in 11 421
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and 90 cents in loan value remember
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your cash balance is negative 11
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fifty five dollars and you're receiving
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eleven thousand
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four hundred and twenty one dollars and
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ninety cents in loan
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this means your margin will be short by
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two hundred and thirty three dollars and
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ten cents
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and you'll be in a margin call it's
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important to know that as per the margin
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account agreement
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a broker can liquidate your investment
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at any time to ensure your account is in
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good standing
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so it's best to monitor and bring your
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account back into good standing
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as soon as you're aware of it monitoring
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margin details
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and taking some time to crunch margin
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calculations is a good habit to get into
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before setting out to use margin if you
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need a more hands-on approach to learn
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about margin accounts
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take a look at our master class schedule
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to sign up for an upcoming live session
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you
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