Placing trades in margin accounts can feel overwhelming if you do not understand the importance of calculating margin. A margin allows you to buy securities by borrowing money.
The margin is the difference between the market value of the stock and the loan amount. Below you will find helpful tips to better understand margin calculations so you can better predict profits and losses and become a more confident, skilled investor.
To calculate the margin required for a long stock purchase, multiply the number of shares x the price x the margin rate. The margin requirement for a short sale is the regular margin requirement plus 100% of the value of the security.
Margin Requirement=shares x price x margin rate percentage
Examples:
|
Long Stock Purchase 1,000 shares of a stock at $50 with margin rate of 30%. The margin requirement would be: 1,000 shares x $50 x 30% margin rate = $15,000 This is the minimum required amount of cash or excess margin that must be in the account before a buy order can be entered. Since 30% is the margin rate, BMO InvestorLine is lending the account holder 70% of the trade value. Maximum loan value is 1,000 shares x $50 x 70% = $35,000 |
Short Stock Short sell 500 shares of a 50% marginable stock priced at $10.00. The margin requirement is 150%. Note: 100% of the margin requirement is generated from the sale of the security. Therefore, the additional initial margin requirement is 50%, the same amount required in order to accept the trade if you were purchasing the stock. 500 shares x $10.00 x 50% = $2,500 The total margin requirement to hold the position, including the 100% of the proceeds from the short sell, is calculated as follows: 500 share x 10.00 x 150% = $7,500 (Note: BMO InvestorLine does not pay interest on the cash proceeds of the short sale.) |
Stocks and warrants
| If the Long Positions are... | Margin Requirement** |
| Common Stocks and are included on the List of Securities Eligible for Reduced Margin or Options Eligible*** | 30% |
| Common Stocks and are not included on the List of Securities Eligible for Reduced Margin or not Options Eligible | 50% |
| Preferred Stocks and are included on the List of Securities Eligible for Reduced Margin or Options Eligible | 35% |
| Preferred Stocks and are not included on the List of Securities Eligible for Reduced Margin or not Options Eligible | 60% |
| Rights / Warrants | 50% |
| ±2x and higher Leveraged Exchange Traded Funds (ETFs) / Exchange Traded Notes (ETNs) | 100% |
| Less than $2.00 | 100% |
Short selling margin requirements
| If the Short Positions are stocks that are... | Margin Requirement** |
| Eligible for reduced margin or options eligible | 130% |
| Not eligible for reduced margin or not options eligible | 150% |
| less than $2.00 | Not permitted to be short sold |
| exceeding CDN$200,000 in market value | 175% |
| If the Short Positions are... | Margin Requirement** |
| Fixed Income Instruments | 100% of the market value of the short position + applicable margin rate as if it is a long position |
Mutual funds
| Mutual Funds | Margin Requirement** |
| Value of $2.00 or more | 50% |
| Value under $2.00 | not eligible for margin |
* BMO InvestorLine maintains the right to change margin requirements at anytime without notice.
** The amount of funds the client must provide.
*** For list of securities eligible for reduced margin, please visit:
http://www.iiroc.ca/Documents/2015/84e16c47-6360-4d44-a9d2-d835c0a2976d_en.pdf
You may be subject to our concentration guidelines depending on the security and the market conditions. A security is considered to be concentrated in a portfolio if its market value or loan value exceeds 25% of the portfolio’s market value or loan value, respectively. The maximum loan value extended to a concentrated position is 25% of its market value. Additional requirements may apply depending upon the specific transactions and positions in your account.