【TEJ Dictionary】Margin Trading (1)
What is margin financing? Can I buy stocks if I don’t have enough money?
🔸Introduction🔸
TEJ [Chip Database] provides various information related to securities and chips, ranging from legal person transaction information, holding costs, broker entry and exit details, the spread of shareholdings under TDCC custody, margin trading to securities borrowing and lending. Up to 35 sub-blocks, users can experience the most complete and accurate Taiwan securities chip information. This chapter, [Margin Trading]will be divided into three parts. The first part will guide readers in a simple and unburdened way to learn how to operate the [Margin Trading] database. It collects information on margin trade, securities borrowing and lending announced by the Taiwan Stock Exchange and OTC Center on a daily basis. Second, after users are familiar with the operation of the database, they can further use the data to derive and construct models. Third, we will continue to lead you to dig deeper into the [Margin Trading] database, including sub-blocks in credit transactions and many chip databases, all of which provide more detailed information on credit transactions.
Highlights of this article
1. What’s Margin Trading ?
2. 「Margin Trading」database user guide!
– 📍How to apply the Margin account?
- The customer is a citizen of the Republic of China who is 20 years of age or older and who is not incapacitated, or a juristic person incorporated and registered under the law of the Republic of China.
- The customer has opened a consignment trading account for at least three months.
- The customer has settled 10 or more transactions of consignment trading during the most recent year with an accumulated transaction value of 50% of the amount limit for margin purchase applied for. This also applies to a consignment trading account opened for less than one year.
- The sum of the customer’s income received and various other properties during the most recent year is at 30% of the amount limit for margin purchase applied for, except where the amount limit for margin purchase applied for is less than NT$500,000.
– 📍What’s Margin Trading?
(1) Margin Purchase
Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you’d be able to normally. To trade on margin, you need a margin account. This is different from a regular cash account, in which you trade using the money in the account. Once the account is opened and operational, you can borrow up to 60%(Listed 60%, OTC 50%) of the purchase price of a stock. This portion of the purchase price that you deposit is known as the initial margin. It’s essential to know that you don’t have to margin all the way up to 60%. You can borrow less, say 10% or 25%. For example, a listed company’s stock “A” is currently trading at 100 per share. At this time, you think it will still grow and have to buy it immediately. Unexpectedly, the funds are insufficient, so you can use Margin Purchase to buy at this time. For this stock, Its Margin Multiplier is 60%, and you need to have 40% of your own funds. Therefore, when you use Margin Purchase to buy this stock, you only need to pay NTD 40,000 and pay the Margin Purchase interest. The annual interest rate of the Margin Purchase interest rate is about 6–7% per year(calculated on a daily basis).
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Margin Multiplier = 60%
Margin Purchase interest rate = 6–7%
Margin Purchase interest = Margin Purchase x interest rate x days ÷ 365(days)
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(2) Margin Short sales
With short selling, a seller opens a short position by borrowing shares, usually from a broker-dealer, hoping to buy them back for a profit if the price declines. Shares must be borrowed because you cannot sell shares that do not exist. To close a short position, a trader buys the shares back on the market — hopefully at a price less than what they borrowed the asset — and returns them to the lender or broker. Traders must account for any interest charged by the broker or commissions charged on trades. To open a short position, a trader must have a margin account and will usually have to pay interest on the value of the borrowed shares while the position is open.
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Margin Short sales Multiplier = 90%
Short sales margin = Margin Short sales x stock price x 90%
Margin Short sales interest rate = roughly 0.1–0.4%
Margin Short sales interest = Short sales margin x Margin Short sales interest rate x days ÷ 365
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📍 Operation Process
1️⃣ Select TEJ Company DB and click [TEJ Equity] and then choose [Margin Trading]
2️⃣ click [Margin Trading]
In this database, you can see the [Long PSTN BAL], [Bought on Margins/ Sold for Return], [Increase % -Long], [Long/Short Limit], [Short/Long], [Borrow PSTN BAL] and closing price (as shown in Figure 2.A), there are more than 50 sub-items for users to refer to. In addition, you can also select a stock and select a specific range through the 🗓 calendar icon in the upper right corner to complete Data creation and query (Figure 2.B).
📍 Field description
[Margin Trading] includes up to 50 items of data, including the derived data calculated by TEJ. The above data will inevitably make it difficult for users to understand the data calculation standard. Users can click “Data Information” to enter the description page (Figure 3.A below), to understand the database application, characteristics, period, source, frequency and derscription.
🔸Conclusion🔸
We want to guide readers into this relatively unfamiliar Margin Trading field through three series of articles. First, this article “Margin Trading (1)” introduces the meaning of Margin Purchase and Short sales, and explains how to obtain information through basic database operations. Next, we will launch “Margin Trading (2)” to further demonstrate how to use the advanced [Margin Trading] data to observe stock price trends. If you have any further queries or suggestions regarding the TEJ database, please do not hesitate to send your inquiries or ideas by phone or by email to us.
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