GREY:XEBEQ - Post by User
Comment by
tamaracktopon Nov 29, 2020 1:29pm
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Post# 31996961
RE:Put it this way.
RE:Put it this way.One last thing about margin. I'm not advocating it, as it's not suitable for everybody. The fact remains that some here might not fully understand exactly how it works.
Margin debt is not exactly the same as a loan. You don't have to make payments per se. Every month the interest is added to the debit in your account. Margin interest at the Royal Bank is now 4% I believe. In the aforementioned example, someone who buys 1000 shares shows a debit in their account of $5810, after buying 1000 shares at $5.80. A month later they are charged $19.40 interest. ( 1 month interest at 4% pa). Their debit grows from $5,810 to $5,829.40 after a month.
In the original example, they wouldn't need to pay anything because the were left with $1400 in excess margin after buying the additional 1000 shares.
Theoretically, and purely theoretically, in the optimal case where Xebec climbs steadily, they might never have to make a payment. And at the end of the year the bank sends them a breakdown of interest charges they paid during the year, which are 100% tax deductible.