Managing a margin call

Buffer limits and margin callsWhat to do if a margin call occursReducing the risk of a margin call

In a situation where your outstanding loan balance exceeds the security value of your investments, NAB Margin Lending allows a buffer so that small fluctuations in values do not result in a margin call. The buffer is a percentage calculated as the aggregate of:

• the value of each share in your portfolio divided by the total value of your portfolio and multiplied by 5%; and
• the value of each managed fund in your portfolio divided by the total value of your portfolio and multiplied by 10%.

This percentage is then multiplied by the total market value of your portfolio to give a buffer amount in dollar terms.

If your outstanding loan balance exceeds the security value of your investments so you are out of the buffer, you will need to meet a margin call.

Unless a margin call position arises, you are not obliged to take any action to restore the security value of your investments to more than the outstanding loan amount, though it might be in your interests to do so. While you are in the buffer, you will not be able to withdraw funds or make further purchases, and the chance of a margin call increases.

What to do if a margin call occurs

If NAB Margin Lending makes a margin call, you should undertake one or more of the following steps to restore the security value of your portfolio to more than your outstanding loan amount:

Reducing the risk of a margin call

While a margin loan can increase your gains in a rising market, it can also magnify your losses when the market declines.  A margin call may occur in this instance.

A margin call arises when your Current LVR exceeds the Base LVR by more than the buffer. The amount of the buffer will be between 5% and 10% of the value of your portfolio depending on the proportion of shares and managed funds in your portfolio.

To reduce the risk of a margin call you can:

• Gear conservatively and borrow less than the maximum available
• Diversify your portfolio across a number of industry sectors and companies
• Make regular interest payments and don't capitalise your interest
• Monitor your portfolio and loan balance frequently
• Reinvest the income from your investments

We recommend that you speak to your financial adviser to discuss your investment strategy and financial circumstances when deciding whether or not to gear your investments.

Any advice on this page was prepared without taking into account the objectives, financial circumstances or needs of any particular person. Before acting on the advice you should consider the appropriateness of the advice having regard to your particular objectives, financial circumstances and needs. Where the advice relates to a financial product, you should obtain and consider the Product Disclosure Statement relating to the product before making any decision in relation to the product. To the maximum extent permitted by law, NAB and companies in the National Australia Bank Group expressly disclaim all or any liability which may arise out of the provision to or use by the recipient of this information and any other person.

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