Margin on Shares

[faure]

I have a question/suggestion. I can trade SSF's at 10%-15% margin and SAFEX seems okay with that. What is to stop SFM from allowing us to margin at the same rate on ordinary shares? There would be way more liquidity and increased turnover = more revenue for SFM. They could charge something like 0.05% per day on the margin which wouldn't be such a big deal to us traders but x 365 days = 18.25% p.a. interest for SFM, pretty much risk free. Margin trading of shares is pretty much common place in the US. What am I missing?

[SimonPB]

faure. A fair bit of difference between margin trading and SSF trading. Margin trading says you own say 100 AGL worth R33k and SFM lends you some 40%-60% of this value. But they have the hard shares and you have borrow less then their value. With SSF you you put down a small bit of cash as security and a nasty move against you sees you owing more then what you put down. This is very very unlikely with a margin tarding account.

So short answer is that mnargin trading is way lower risk then SSF.

[faure]

What I'm basically getting at is why doesn't SFM increase the margin rate (gearing) on shares to the same level as that of SSF's?

[SimonPB]

risk

[faure]

SAFEX accepts that level of risk. Why can't SFM?

[Tango]

If you are so keen to increase your gearing, why don't you just trade SSF or ALSI futures? The trading costs are much lower than for shares. Why insist that SFM takes on more risk than they do already?

[SimonPB]

faure, you have me confused. You can trade SSF here and take the higher risk. Or you can use the margin option and take a much lower risk. SFM offers both as both have a market - it's up to you which you use (if either).

[faure]

I do trade SSF's but there are shares that don't have corresponding SSF's eg. SXR. My margin is precious to me so to buy the shares outright would be a big opportunity cost. The leverage SFM offers at 50% isn't all that much so I'm kinda stuck in a corner.

[SimonPB]

for sure some stocks don't have ssf's on them. This is a liquidity issue more then anything else.